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How to get into IRS Tax Compliance – The Streamlined Procedures (We’re The Brits In America S1:E25)

Episode 25 Shownotes – How to get into IRS Tax Compliance – The Streamlined Procedures

The US taxation system is unique, complex and significantly different from the UK’s. It demands proactive compliance due to its stringent reporting requirements and severe penalties for failing to do so.

There’s a lot of noise in this space and a million different situations you could find yourselves in – that’s why it’s important to seek out cross-border tax experts for their niche advice.

This week, Richard Taylor is joined by Chris McLemore, Partner at McLemore Konschnik, a London based boutique law firm of US lawyers specializing in tax, trust and estate planning advice for US citizens and green card holders and their businesses, whether based in the UK or internationally.

They chat about the complex world of US tax compliance, particularly for British expatriates, and use their extensive knowledge to discuss why it’s so crucial for expats to stay compliant with US tax laws, the common pitfalls they face, and the solutions available to them.

Expect to gain knowledge on navigating streamlined procedures, the difference between wilful and non-wilful compliance and the potential penalties for failing to report foreign income and assets – if you’re a Brit living in America, this episode is packed full of essential information you simply can’t afford to miss.

We’re the Brits in America is affiliated with Plan First Wealth LLC, an SEC-registered investment advisor. The views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views or positions of Plan First Wealth.

Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Plan First Wealth does not provide any tax and/or legal advice and strongly recommends that listeners seek their own advice in these areas.

About Richard

Richard Taylor is a British expat, dual citizen (UK & US). Originally from Bolton, he now lives in Greenwich, CT, where Plan First Wealth has its head office.

As the firm’s leader, Richard launched Taylor & Taylor, now Plan First Wealth, and continues to fuel the firm’s growth. Richard is a Chartered Financial Planner (UK – CII) in addition to holding the IMC (CFA UK) and Series 65 (US – FINRA).

Connect with Richard on LinkedIn

About Chris

Chris McLemore is the founding partner at McLemore Konschnik LLP with a practice emphasis in international private client advice. He and his partner, Kristin Konschnik, are based in London, UK.

Working as a US tax and estate planning attorney, his practice specializes in tax, trust and estate planning advice for US citizens and green card holders, as well as their businesses.

Connect with Chris on LinkedIn

Transcript:

Richard Taylor:
[00:00:21 – 00:01:12]
Welcome to the we’re the Brits in America podcast, a plan first wealth podcast or Brits in America by Brits in America, dedicated to helping british expats thrive in America. I’m your host, Richard Taylor and plan First wealth is the business I founded and run today, and we work with successful british expatriates living across the US to make the most of their opportunity and avoid the expat landmines. However, while Plan First Wealth, LLC is an SEC registered investment advisor, the views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views or positions of Plan First wealth. Information presented is for educational purposes only. Now, if you aren’t already receiving our weekly emails, please go to our website www.planfirstwealth.com and sign up to WealthHub.

Richard Taylor:
[00:01:12 – 00:01:48]
It’s free and you’ll then be notified every time we drop a new episode and so much more. Alrighty, let’s get back to this week’s show. Welcome to our Ask an expert show where I invite a fellow professional in the US UK cross border space to come in and talk to me about the issues we think Brits in America need to be aware of if they are going to thrive here. I am delighted and honoured to be joined today by someone I greatly admire and like enormously, Mister Chris McLemore. Chris is a us tax and estate planning attorney living and working in London running the law firm McLemore Konschnik with his law partner Kristin Konschnik.

Richard Taylor:
[00:01:48 – 00:02:26]
McLemore Konschnik is a London based boutique law firm of us lawyers specializing in tax, trust and estate planning advice for us citizens and green card holders and their businesses, whether based in the UK or internationally. Now, there is so much that Chris and I could talk about and there’s so much that I want to talk about today, but we have to pick one thing. So today we’re going to focus our conversation on us tax compliance, specifically one of the programs available to us taxpayers to voluntarily come into compliance before they are under IR’s audit or investigation. This is an incredibly important topic. It’s massively understood if people are even aware of it.

Richard Taylor:
[00:02:26 – 00:02:39]
And I can’t stress enough how fortunate we are to have someone of Chris’s calibre on to share his experience, his knowledge, and his insights. So, without further ado, let’s get into this. Hi, Chris. Welcome to we’re the Brits in America.

Chris McLemore:
[00:02:39 – 00:02:49]
Thank you, Richard. That’s a very kind introduction there. Yeah, it feels a bit funny for me. You’re sat in the Us with your accent, and I’m sat here. I’m actually the American in England.

Chris McLemore:
[00:02:49 – 00:02:52]
But for purposes for this podcast, I’ll stick with your title.

Richard Taylor:
[00:02:52 – 00:03:16]
So, full disclosure, people, my firm has a relationship with Chris’s firm, as do many of our clients. So that introduction was based not just on reputation alone, but on my personal experience. But one of the things that I’ve enjoyed, as I’ve got to know Chris, is, in some respects, he’s the mirror of my situation. So, I’m a Brit married to a Brit in America with american born kids. Chris is an American married to an American with british born kids.

Richard Taylor:
[00:03:16 – 00:03:24]
And aside from the legal advice and the guidance and the counseling, we’ve had some great conversations on swapping notes and comparing stories.

Chris McLemore:
[00:03:24 – 00:03:51]
So many of my clients are based here in London, and so my worldview has shifted. I’ve been here 17 years, so my worldview has shifted so much. So it’s funny not only to talk to somebody who’s in the States, but to talk to somebody who’s a Brit who’s in the US, because you come with, you know, I pretend to be british. You actually are british. But to hear you kind of translate it into the US, yeah, it’s a bit of a mirror image, and it’s a refreshing take on the country that I once called home.

Richard Taylor:
[00:03:51 – 00:04:01]
You know, I was meant before I said, we’re honored to have you on. You have such a reputation in the UK. I was actually. I’m gonna just be the sycophant for a minute. I can’t remember who it was, to be honest with you, but I was talking to.

Richard Taylor:
[00:04:01 – 00:04:16]
I was establishing a relationship with a London based UK US tax accountant, and I mentioned that I knew you, and we had this relationship, and he said, oh. He said, oh, Chris and his wife, they’re the us tax royalty in London. So that’s. That’s your station. I didn’t get.

Richard Taylor:
[00:04:16 – 00:04:19]
I don’t think that’s much better than that for an american being called royalty in the UK.

Chris McLemore:
[00:04:19 – 00:04:56]
Well, I know how a lot of people actually feel about royalty in this country, so I’m not sure that’s a compliment, but I think if we just take that at face value, that’s very kind. I think that the one benefit we have is that we’ve been here for a long time, nearly two decades now, of sitting in the UK, but I’m licensed in the state of New York, so I’m a us lawyer. And I think the real difference is, because there’s a lot of people who do cross border work, but, you know, do it from outside of an international setting, is that everything that we do and everything we touch on a daily basis is us plus something else. Right. I’m never doing domestic only us work.

Chris McLemore:
[00:04:56 – 00:05:16]
So that means that every matter that we pick up has an international aspect. Many times it’s multiple international aspects. And so that just really creates a unique position for us and one that I don’t think, you know, most people have. Most people have an international practice and a domestic practice, but not purely international.

Richard Taylor:
[00:05:16 – 00:05:43]
It’s not just that nicely deflected, by the way, at the beginning, but it’s not just that. So I’ve been here ten years now, and I’ve met quite a few american lawyers. And american lawyers, they either give you the ick or they’re incredibly impressive. And with the impressive comes often an intimidation. And my personal opinion of you is, and I think this is other people feel the same way, from what I’ve heard, is you have the impressiveness of the american attorney, but you have a fantastic way with people.

Richard Taylor:
[00:05:43 – 00:05:54]
You’re not intimidating in that sense, in that people feel empathy and compassion that is sometimes lacking in the profession. And that is hugely appreciated. And I think that uniqueness is what drives a lot of your reputation, so.

Chris McLemore:
[00:05:54 – 00:06:19]
Well, thank you. I think clients, you know, some of the issues we talk about, even things that are fairly neutral, like estate planning, you know, it’s still a very intimate relationship. You know, you’re talking about things like guardian of minor children, you know, death, you know, subjects that can be quite intimidating in and of themselves. Even things like talking about your finances in a very deep and open way. I’m sure you see that even though you’re in the finance business, I’m sure sometimes people don’t want to share.

Chris McLemore:
[00:06:19 – 00:06:44]
And so you kind of get a download from people, and so you have to be sensitive to that. And sometimes tax matters are things like audits or investigations or just downright confusion. And the problem that I see is that so many people try and drive clientele through fear. And that’s never been my way, because I don’t want a terrified client. I’d like a client, but I’m not going to get them through fear, and I’m certainly not going to maintain that fear.

Chris McLemore:
[00:06:44 – 00:07:11]
And there are some people who do that. So I had a friend call me because he knows another American here in London. He himself is american here in London, and he knows another American, and they needed to do some tax compliance, and so they got in touch with an accountant. And so he told me this person’s name and I immediately said to him, have they told the client they need to get fitted out for an orange jumpsuit yet? And he just started laughing, because that was the response that the accountant had had.

Chris McLemore:
[00:07:11 – 00:07:25]
It was basically, you’re not in compliance. And these were minor non compliance issues. It wasn’t as though the person wasn’t filing, they’ve been filing, but they got some things wrong. And in fact, they used a qualified us accountant here in the UK. So it wasn’t even like they were trying to do it themselves.

Chris McLemore:
[00:07:25 – 00:07:50]
They’d gone to somebody, relied on that person, and they went to a new accountant, for whatever reason, and that person crawled a loop. They returned and said, these things have been missing, and by the way, there’s jail time involved. You know, that’s not the way I want to run my practice, and it’s certainly not the way that I want the kind of broader us advisory community in the UK to be operated. For the most part, it’s not. But some people still do prey on fear, and it’s a really good way to get people in the front door.

Chris McLemore:
[00:07:50 – 00:07:51]
It’s just not the door I choose.

Richard Taylor:
[00:07:51 – 00:08:20]
There is a fine line. I absolutely agree with you. Right. But having done this for a while here, now, there is a fine line, though, between scare mongering, which I absolutely don’t endorse in any way, shape or form, and trying to jolt people sometimes into this is a big deal. You need to deal with this, because what I find is dealing with this with Brits in America, is people coming over here and have no real awareness for the intricacies, the difficulties, the additional challenges, the nuances.

Richard Taylor:
[00:08:20 – 00:08:42]
And they don’t really want to know after a certain point, and when we speak to people, and very often within the first ten minutes of conversation, things start popping up that you realize. And then people fall into two camps. There’s either the camp who are open to this and want to deal with it, and the rest who are just like, it’s not a problem this far, so I don’t think it’s a problem going forward, so I’ll just carry on. And it’s. You don’t want to, then?

Richard Taylor:
[00:08:42 – 00:08:48]
I don’t want to fall into fear mongering to get them to see that it might not be a serious situation now, but it could become one. Or just letting them go about their merry way.

Chris McLemore:
[00:08:48 – 00:09:14]
Yeah, I think I probably see less of that than you because by the time you get to a lawyer, you kind of have picked up on the fact that it’s serious or that something, and not everyone, so you’ll just don’t know and they come to you for advice. But most of the time, people have had that kind of come to Jesus moment. Now, clearly some people will try and push back, right? And they’ll say what they’ve said to you. We can keep not doing this.

Chris McLemore:
[00:09:14 – 00:09:28]
This was a gray area, so we never reported x, and we’re going to keep doing that. That’s not most of the people that come to me, but I tell them, historically, you’ve had your head in the sand. There’s no more sand. Right. That’s the problem.

Chris McLemore:
[00:09:28 – 00:09:49]
Because back ten years ago, when there wasn’t fatCa, when there wasn’t international awareness, when there weren’t tax lawyers everywhere, accountants, you know, you couldn’t get good advice, there was somewhere to stick your hand, and now it’s just sticking out. And that’s a problem. Now, some people still say, look, Chris, thanks for the advice. I’m going to go consider my options. And you don’t hear from them.

Chris McLemore:
[00:09:49 – 00:10:10]
And I assume that suddenly they’re trying to find another pile of sand. But that’s a tough job. And many times what I find, because people have the fear of God in them for whatever reason, by the time they come to me, is that I’m actually talking them away from that cliff. So sometimes you’ve got to frighten people to say, look, this is serious, it’s not a joke. You need to take care of these issues.

Chris McLemore:
[00:10:10 – 00:10:21]
A lot of times I’m saying it’s going to be okay. We can make this work. So I don’t have to stand in that role. We can get you for a to b. There’s a lot of aggro and admin in the middle, but we can get you there.

Richard Taylor:
[00:10:21 – 00:10:38]
I probably shouldn’t jump into this right now, but I’m also right in thinking that not only is there no more sand, but now that you’ve been made aware of it, potentially, if you carry on on the path you’re on, you lose good options. Right. Because arguably you can go from this concept of willful or non willfulness. Non willfulness. You know, sorry, gov, I didn’t know.

Richard Taylor:
[00:10:39 – 00:10:49]
I tried my best. Once you’ve been made aware of something and you carry on doing it. It’s hard of you to hold your hand up and say, listen, I didn’t know. I thought I was doing the right thing, and then maybe you lose some of the good options.

Chris McLemore:
[00:10:49 – 00:11:21]
Yeah, look, there are certainly some things where there is not a clear position on whether asset or income needs to be treated one way or another way. Does something need to be reported? So sometimes people can take a view and say, look, I hear what you’ve said, and I accepted. Some people will report on that basis, but I’m taking this alternative view that’s in and of itself, not necessarily problematic. But there are times, I mean, certainly if it’s somebody who comes to you, they’ve never filed a tax return and they’re american, and you say, I understand that this is not something you’re aware of, which we still get.

Chris McLemore:
[00:11:21 – 00:11:38]
Amazingly, we still get Americans, especially if they’re born in this country. They may have never known that they needed to file. There was a lot of poor advice being given out historically. But when you lay out chapter and verse, it’s hard for them to then later say to somebody, I had no idea, and that’s problematic.

Richard Taylor:
[00:11:38 – 00:11:56]
Right, let’s set up why I wanted to have this conversation. We’re obviously working with Brits in America, but this applies, I think, to any person coming to America. America famously has this almost unique taxation system, citizen based taxation. It has the legislation chris alluded to before. FaTca has another one, bank Secrecy act, which is to do with the fbAr.

Richard Taylor:
[00:11:56 – 00:12:30]
Essentially what I’m getting at here is when you come to America, when you become a us person, the tax rules are different to what you’re used to, probably. And there’s more of them, the repercussions of getting them wrong are potentially more serious. And if you move here mid career, early mid career, when you have assets in a different country, talking about the UK, obviously, or income streams in the UK, and you come to America and you don’t work with someone, I still think the vast majority of people don’t. They don’t work with a cross border person, they don’t do pre immigration planning, they move here and they just carry on doing what they’ve always done. They think the way they did it in the UK, they can probably carry on doing something similar in the US.

Richard Taylor:
[00:12:30 – 00:13:14]
What that means is by the time they get to us, honestly, more than nine times out of ten, within the first 1015 minutes, we spot problems, you know, shortcomings in their us filing, whether it’s unreported income or just missed informational returns that they had no idea about. It’s the exception rather than the exception comes when they’re working with a. Almost always with a UK based UK US accountancy firm, you know, buzzer cots or whatever it might be every other time there’s problems. And it can be something as simple as not reporting certain assets on certain forms, and it can be something as serious as unreported income. And this can cause people searching around for more sun to bury their heads in to carry on that metaphor.

Richard Taylor:
[00:13:14 – 00:13:31]
Or it can lead to people asking like, I can’t live like this. The IR’s are very successful, putting their fear of God into people and then wanting to sort it out. So I want to talk to you about your experiences of people being in non compliance, but then the solutions available to them, specifically the streamlined solution I alluded to earlier.

Chris McLemore:
[00:13:31 – 00:13:52]
Yeah. One thing that people, especially coming from the UK. So the UK is unique. Well, like the vast majority of countries in the world, it operates taxation on the basis of residence, or citus, for income tax purposes. If you’re resident here, you pay your income tax potential on a worldwide basis, and if you leave and are non resident, you can file tax returns in the UK.

Chris McLemore:
[00:13:53 – 00:14:29]
But also, many people in this country don’t even file tax returns because your income tax is taken out at PAYe pay as you earn scenario. So when I was a junior lawyer, I didn’t have to file a UK tax return because the only income I had was my wage income. It was taxed, it was fine. So you’re coming from an environment, if we’re talking about UK to us, where you’re engaged with an accountant or tax professional, might be non existent to limited, then you go to the US, where not only is the US system more complicated, but now you’ve got cross border issues, which is in and of itself even more difficult. And I say to clients when I’m talking to them here, and this is not Brits going to the States, it’s usually Americans here.

Chris McLemore:
[00:14:29 – 00:14:54]
But it works in both settings. If you’ve got a cross border situation where you’ve got income and assets in two different places, the vast majority of those people will need an accountant, many of them will need a financial planner, some of them will need a lawyer. Right? I’m not naive enough to think that everybody needs a lawyer, but what I will say to you is that the people who don’t have number one more commonly need number three. If you don’t have an accountant, it’s a better chance you need a lawyer.

Chris McLemore:
[00:14:54 – 00:15:16]
And that’s a situation that comes up over and over again. I’m preventative, but it’s going to take a tax advisor, an accountant or somebody to help you out. And it’s just the nature of, not only have you gone from a system, if you’re coming from the UK, that is much more straightforward. And people here in the UK think HMRC is bad, you can pick up the phone and call HMRC. Right?

Chris McLemore:
[00:15:16 – 00:15:26]
Again, the fact that you don’t have to file a tax return, in the vast majority of scenarios, the fact that penalty mitigation is much more straightforward. And then you go into the United States, inevitably problems are going to arise.

Richard Taylor:
[00:15:27 – 00:15:46]
And I find people carry those expectations over. And when they’re confronted with the reality that it’s all different over here, that can be a very rude awakening. A very rude awakening. And I’m plugged into both worlds. So when I see tax advisors on LinkedIn lamenting the state of HMRC and the penalties, it’s laughable to me.

Richard Taylor:
[00:15:46 – 00:15:53]
People getting angry over 100 pound penalties. And I just think, if you only knew. I mean, basically, Ir’s starting offer is ten grand.

Chris McLemore:
[00:15:53 – 00:15:54]
Yeah, it’s a different world.

Richard Taylor:
[00:15:54 – 00:16:24]
It’s a different world altogether. But the point I’m trying to make is, I love the way you put it. I’m gonna lift that and use it. If you don’t have an accountant, and not just any accountant, a cross border accountant, especially cross border accountant, the chances of you being in non compliance are just dramatically higher, and the vast majority don’t because they’re not used to paying for tax advice or tax return submission. Certainly not used to paying for someone who’s US qualified, UK qualified, and understands the interaction between the two, which obviously comes at a premium.

Richard Taylor:
[00:16:24 – 00:16:48]
So if you do have an accountant, it’s probably not a cross border accountant, and all the problems that ensue from it. So it’s such a common problem, it’s endemic. But then it comes about, right, solutions are available, right. The Ir’s is. I mean, I don’t want to put words in your mouth here, but the IR’s is aware that people are in non compliance in massive numbers, and there are programs available to come in from the cold.

Richard Taylor:
[00:16:48 – 00:17:15]
And these aren’t the people we speak to I want to get into today, but you’ve been intentionally, purposely doing things you shouldn’t be doing, or hiding those programs that exist there. But what’s more relevant for us and the people we speak to is, oh, I haven’t been filing all the reforms required under FATCA. So it’s just purely informational return deficiencies, or delinquencies, as they call them. Or I’ve got some unreported income. I haven’t been reporting my bank account interest, UK bank account interest.

Richard Taylor:
[00:17:15 – 00:17:30]
I had an ISA, or I have an ISA in the UK that I thought I could continue to treat tax free, and I’ve got unreported income and dividends and gains from my ISA. And I could go on naming examples. They’re two really common ones. That situation presents itself. What options does someone have?

Chris McLemore:
[00:17:30 – 00:18:27]
Chris so if we think back just a little history lesson in terms of compliance correction programs in the international space, it really goes back to around 2008 or 2009, when the IR’s created the Offshore volunteer disclosure program, which was really targeting at that time, there was an increased focus, taxpayers in particular in Switzerland, who were intentionally stuffing money away and not paying tax on it, and UBS got sued by the Department of Justice and it was clear that they were going to have to turn some names over. But you didn’t know if your name was going to be in that mix. But there was some financial institutions, and it wasn’t just Switzerland. That’s where a lot of it was, you know, initiated, and it was real tax evasion. So clients with numbered bank accounts, and they actually had burn notices with their statements, so the bank statements would be incinerated and never leave the building, so nobody would ever catch the post and find the others bank account.

Chris McLemore:
[00:18:27 – 00:19:01]
So that was the backdrop against which the OVDP was launched, and that created a lot of awareness about the obligations to file tax returns. If you’re outside of the United States, for people who either didn’t know at all or didn’t understand the seriousness we hear all the time, I knew I should have been doing it, but I didn’t know tax, and so I didn’t think it mattered. But that put an intense focus. It was in the papers here. So a lot of people came out of the woodwork, but they said, look, this program doesn’t apply to us because there’s a really high penalty associated with participation, which makes total sense because it’s for tax evasion.

Chris McLemore:
[00:19:01 – 00:19:34]
So if you’ve been evading tax, you shouldn’t be surprised. You’ve been hit with a big penalty to become compliant. And taxpayers and the practitioner community said this is not an appropriate program for all of these tens of thousands of people who want to become compliant but didn’t know or had good reason to not file. And so in 2011, the IR’s launched the first iteration of the streamlined procedures, and then they were revised in 2014. I think I’m getting these numbers right to roughly the current program and the streamlined procedures.

Chris McLemore:
[00:19:34 – 00:20:04]
That program itself is split into two programs. There’s the foreign procedures for individuals who live outside of the United States, and there’s the domestic procedures called the streamlined domestic offshore procedures for individuals who are resident in the United States. And the terms are slightly different. But at that point, the IR’s basically said, look, there are two programs now, and so it’s one size fits all. If your behavior is willful, you go in that door, you go in the voluntary disclosure program, you pay a huge penalty, and that’s the right outcome for you.

Chris McLemore:
[00:20:04 – 00:20:27]
If your behavior was non willful, streamlined procedures, and you can go in that door and participate in that program with much reduced penalty and reduced number of years to file, etcetera. And so that was kind of the gambit. You either go in the volunteer disclosure program, you go in the streamlined procedures. And again, this is for people who have what we call unreported offshore income. So that means income from outside of the United States.

Chris McLemore:
[00:20:27 – 00:20:52]
So if your problems are only domestic us, it’s not appropriate for you. It’s for people with unreported offshore income. Now, we know that there are some people who don’t fit either program either, because they were definitely not willful, but they don’t meet some technical requirement of the program. And so there’s some people that fall in the middle. There’s another program for individuals who have only failed to file informational returns.

Chris McLemore:
[00:20:52 – 00:21:26]
This is called the delinquent International Informational return program, the DIIR. And that would be if maybe, you know, you should have been filing form 3520 to report an ownership interest in a non us trust, and you hadn’t been doing that, you could become compliant by using those procedures. Those don’t work as well or as straightforward as the streamlined procedures, but they exist, and it’s a good way to become compliant. So there are several options. The reality is, for most people, it’s going to be the streamlined, your clients, the streamlined domestic offshore procedures where they can become compliant.

Chris McLemore:
[00:21:26 – 00:21:44]
And the terms are really generous. It’s three years of back tax return. So you file tax returns for the three most recent years where a deadline is passed. So if you were to be going in today in that program, well, I guess your clients are domestic, so they would have filed their 23 returns. My clients are foreign, so they haven’t filed 23 yet.

Chris McLemore:
[00:21:44 – 00:22:34]
But let’s say, so you’d be filing an amended 23, 22 and 21 return. You file six years of fbars and other informational returns, you pay the tax that’s due. So on the basis of that creates tax liability, you pay the tax, you pay an interest component, and unlike the foreign procedures, so for people who haven’t been living in the United States, there is a penalty charge for participation in the domestic streamlined procedure, and it’s effectively 5% of the assets or accounts that created the non compliance. It’s more nuanced than that. But if you had, well, let’s say you had an investment account somewhere here, St James Place here in the UK, and you weren’t reporting it, or you hadn’t been reporting the income from it, it’s worth a million dollars, the penalty would be 5% of the value of that account.

Chris McLemore:
[00:22:34 – 00:22:53]
So it can be quite big. Now the IR’s would say, well, first of all, the penalty is. It’s a penalty. So that, yeah, that might hurt a bit, but the other is in exchange for all of the other penalties that we could possibly assess, it’s probably still a bargain. Now, the streamlined procedures, they’re very light touch from the IR’s perspective.

Chris McLemore:
[00:22:53 – 00:23:19]
There’s not a lot of guidance out there, there’s not a lot of notes. They’ve created a rough and ready approach for people to become compliant. So for some people, the penalty is they might feel inappropriate in relationship to the non compliant, but in some cases it’s small. To frank, all these potential penalties that you might have for informational returns, I mean, that’s in broad brush, the program and how we got here. But it could be a really powerful way for people to become compliant if they’ve got something missing.

Richard Taylor:
[00:23:19 – 00:23:38]
Right, let’s just work an example here. So let’s say we speak to someone, this is based on a real example, honestly, who’s been here for 20 odd years, let’s just say ten years, right. And that entire time they’ve had an ISa from the UK, this is a cash Isa. In this case, let’s make it an investment ISA. It’s an investment ISA and they’ve just not been reporting the dividends that have been received from it.

Richard Taylor:
[00:23:38 – 00:24:22]
They thought it was all tax free for ten years. So that’s ten years of unreported income from dividends, ten years if they made any trades, if they made any capital gains, unreported capital gains. Plus they’ve not been reporting it accurately and correctly on various forms. So if you determine it’s non willful and they apply to enter the streamlined program, they don’t have to go back ten years and pick up all the income and gains for the last ten years and the cost that’s associated with amending ten years worth of returns. They only have to go back three years and amend their last three tax returns to pick up any income and gains that there was realized or received in the last three years and then pay tax on that and then pay interest from the date that tax should have been paid.

Richard Taylor:
[00:24:22 – 00:24:32]
If you had accounts going back 10, 15, 20 years, that in itself is potentially should be very welcome news. You only have to go back three years, incidentally, what happens to the previous years?

Chris McLemore:
[00:24:32 – 00:25:05]
Well, I mean, there’s a couple of points there. So if you’ve been filing tax returns, you know, on a good faith basis, you know, you had an accountant doing it and you just hadn’t been, you know, reporting the ISA income, which is very natural, because in this country, isas are tax free. It’s meant for a way for the everyman to get invested in the stock market, to take advantage of some of that upside so that we could all benefit do it on a tax free basis. And in fact, it doesn’t even appear in your UK tax return if you have to file one, because it’s not taxable. So it’s not as though you report it and then you back out the income.

Chris McLemore:
[00:25:05 – 00:25:21]
It just doesn’t even show up. So sometimes people say, look, here’s my UK tax return, and the I says, not there. So nobody even thinks about it. So it really natural thing to forget about. But if you’ve been filed these tax returns in the US on a good faith basis, there’s a statute of limitation, period.

Chris McLemore:
[00:25:22 – 00:25:36]
So the IR’s probably couldn’t go back ten years on the income tax unless there are other forms that should have been filed that leave the statute of limitations open. So it’s just going to depend on the circumstances.

Richard Taylor:
[00:25:36 – 00:26:01]
Let’s say it’s an investment, Isa put good money on it, that right now there are informational returns missing. There will be no 8621s for the PFIX that it’s undoubtedly invested in. There may or may not be at the 8635 which the reporting, the one where you report the account level. So I think in most situations, maybe not a cash iter, but in those situations, I bet there are informational returns missing and then you have, the argument is a statutory limitations clock even ticking?

Chris McLemore:
[00:26:01 – 00:26:23]
Yeah. Stocks and shares ISa will almost certainly be invested in funds which are Pacifornia investment companies or PIFX. For us purposes. So in those cases, you would need to file form 8621 and the statute might still be open. So you may or may not, depending on the circumstances, have a broad period of years that could be under audit by the IR’s, but you’re captured three.

Chris McLemore:
[00:26:23 – 00:26:41]
And your question is, what happens to the years prior to that third year back? And one of the benefits of the old offshore voluntary disclosure program that I mentioned was for willful behavior. In that program, you had to file eight years of returns. You pay a huge penalty. So it was a really onerous program.

Richard Taylor:
[00:26:41 – 00:26:49]
But hopefully avoid criminal prosecution. I don’t think we specified that. But just if you’ve been willfully evading tax, it’s going to cost you. You just want to avoid criminal prosecution.

Chris McLemore:
[00:26:49 – 00:26:50]
Yep.

Richard Taylor:
[00:26:50 – 00:26:51]
And that’s valuable.

Chris McLemore:
[00:26:51 – 00:27:04]
Yeah, yeah. I mean, those were big checks and people happily wrote them. Right. Because you were avoiding, as you say, a lot of penalties but also potential criminal exposure. But one positive of that was that you got a closing agreement at the end.

Chris McLemore:
[00:27:04 – 00:27:26]
The IR’s would write and say, look, we’re done and dusted, and as long as you haven’t committed fraud, you’ve been upfront with us, this is it, and we’re not going to go back on the previous years. You don’t get that kind of closing agreement and the streamlined procedure. In fact, you don’t even get notification that it’s been accepted. The package will be sent in, it’ll be dealt with. If you have to pay tax, you’ll see that the check gets cashed.

Chris McLemore:
[00:27:26 – 00:27:39]
The IR’s may write to you and say, oh, you forgot to calculate this interest. In this way, you owe us dollar ten, we owe you $30, whatever. Those things might come out in the wash, but you’re not going to get a letter at the end that says, thanks very much, Richard. You’re back in the system.

Richard Taylor:
[00:27:39 – 00:27:58]
Everything is square because they process your return like just an amended return. Like we think of it like you’re entering this program and you are, but then you separately have to think, I’m just filing amended returns. And amended returns get processed like amended returns. So it’s not like you go into a separate channel where different things happen. You’re entering a protective program, but you’re still submitting amended returns.

Richard Taylor:
[00:27:58 – 00:28:02]
And the usual, you know, back and forth that you refer to is common.

Chris McLemore:
[00:28:02 – 00:28:32]
Yeah, exactly. And the streamlined statement that accompanies that, that sets out why your behavior was not willful and you know, why you meet the requirements of the program and should be included, you know, that gets processed separately. But the returns you write, they go in, they get processed as any other returns would do, but you don’t get a closing agreement. So there’s an understanding with the IR’s that if you do the streamlined procedure and you’re accepted, that you’re not obliged to go back and address those prior years, but you’re not going to get that in writing. And that’s just because of the nature of the program.

Chris McLemore:
[00:28:32 – 00:29:04]
So we would tell clients, you know, once it’s over, you really, once you send that in, once you’ve gone through all of the work you’ve done, the returns, you’ve prepared a statement, it’s been combed through, you’ve explained your situation, and the artist has said, we want the good, the bad and the ugly facts, right? You don’t just tell them the good facts like you didn’t know or whatever, you tell them the bad facts, right? Like if a friend raised it with you and said, well, maybe you should talk to an accountant or whatever it was, that is not an ideal fact in the scenario pattern. You got to explain that. So you’ve done that.

Chris McLemore:
[00:29:04 – 00:29:20]
You explain all that behavior. Once that goes in, we would say to clients, you know, treat yourself as a compliant taxpayer at that point, right? You’ve done what’s been asked of you. The IR’s has said if you want to become quote unquote compliant, file three years, you’ve done that. And so the prior years can be left alone.

Chris McLemore:
[00:29:21 – 00:29:37]
And some people say, well, that feels too good to be true, right? In some cases, somebody sold an asset four years ago, so it’s just outside of the streamlined years. And that tax doesn’t appear in the returns. You don’t have to submit them. But some people sold the business one and a half years ago, and that is in the streamlined years.

Chris McLemore:
[00:29:37 – 00:30:07]
And that’s just the way that it shakes out. Now, for an individual taxpayer, that’s either good or bad, but across the board that stuff’s going to even itself out. And more importantly, it’s getting taxpayers compliant, some of them just straight up back in the system. And I think that that’s clearly a priority of the IR’s. Now, one distinction I should make between the two programs is that in the offshore program, so the people I see here in the UK and elsewhere who aren’t resident in the US, they could file 1040s.

Chris McLemore:
[00:30:07 – 00:30:31]
In other words, they don’t have to have been filing a tax return and are now filing a 1040 x to amend that. We have many people who have never filed a tax return or filed. And then they moved to the UK and thought, I no longer have an obligation and stop filing. And that’s permissible in the optional program or the foreign program. In domestic program, you can’t file a 1040, you have to be filing a 1040 x.

Chris McLemore:
[00:30:32 – 00:30:38]
So you have to have been filing tax returns for the relevant years, which again, is one of those distinctions that can sometimes catch people out.

Richard Taylor:
[00:30:38 – 00:31:08]
Going back to your point about the anxiety people feel, is it too good to be true? I remember when I was first getting scripts for this program, I remember you saying to me, look, the IR’s knows that millions of people are out of compliance and for them to properly review and audit and investigate, it’s an impossible task. Whereas these programs encourage people en masse to come into compliance and pay tax in one go. Think of it in terms of that. This is a catch all program that’s designed to catch, hopefully, millions of taxpayers and produce revenue.

Richard Taylor:
[00:31:08 – 00:31:26]
That’s what it’s aimed at. When I started coming it from that angle, and I realized that those are the terms of the program. As long as you meet the terms to your point, you should then walk away feeling confident. And the other thing that I like to add to that is, I’ve seen this done. First of all, we always recommend having an accountant, a cross border accountant and a tax advisor to do the statement.

Richard Taylor:
[00:31:26 – 00:31:52]
And in my experience, there is an enormous difference between when the returns are handled by a local accountant in the US. Sometimes clients insist on using who they’ve always used, or when they use a cross border person, usually someone you and I both know in London or around. The difference is stark. The ones where it’s been handled by the local person has almost invariably been a disaster. I’m about to say something stronger then, but it’s just been a disaster.

Richard Taylor:
[00:31:52 – 00:32:16]
From completing the forms to submission and what follows, it’s just been a nightmare. But when you’ve used a cross border expert who understands all these factor forms, you and I keep throwing numbers around. We know what they mean. A cross border accountant does, but everyone else doesn’t, including most accountants in the US. But when you’ve used a cross border tax advisor, they’ve combed through your affairs like this, and you’ve liaised with a tax advisor like yourself, and you’ve downloaded all the information, good and bad, and you’ve submitted it.

Richard Taylor:
[00:32:16 – 00:32:42]
People are often anxious about those returns and I say to them, look, I’m not a professional here, but I tell you, my reading of this is these are the best returns you’ll ever submit. You know, these have been handled by a top cross border UK US tax accountant. You’ve worked with a top UK US tax attorney who’s also reviewed the submissions. Like, if ever you’re going to get audited, it’s these returns that are going to be squeaky clean. And if they’re not, you can say, look, I had the best.

Richard Taylor:
[00:32:42 – 00:32:49]
I told them everything. So. And I think that once I explain it that way to them, people are okay. Yeah. You don’t want them going to early years.

Richard Taylor:
[00:32:49 – 00:32:53]
Or if you go back to your local accountant, you know, things could get dicey again. Heaven forbid.

Chris McLemore:
[00:32:53 – 00:33:16]
No, but I spoke to somebody a few days ago, actually, and he’d been filing tax returns that he was trying to do with a non cross border specialist. So it was kind of the two of them. He had a local accountant who didn’t have international expertise and that he was doing some of the international information returns. And then it transpired that he hadn’t been doing everything correctly. No surprise.

Chris McLemore:
[00:33:16 – 00:33:41]
And one thing he hadn’t done is filed form 3520 to report foreign gifts that he had received. So he received an inheritance from an AAD to her uncle who’d passed away. And this was a lot of money and it was material money for him, and it didn’t get reported correctly. And so he called around and he talked to a cross border accountant based here in London. And they said to him, oh, actually, you should have filed this form and you should go the streamline procedure.

Chris McLemore:
[00:33:41 – 00:34:03]
And so I was talking to him and I said, so that’s great news that you got this cross border accountant. You’ve instructed them? And he said, no, no, no, I spoke to them, but I’m going to do it myself with my local guy. And I said, but can’t you see the problem? The reason that you miss file these returns in the first place is because you and the local person didn’t have knowledge.

Chris McLemore:
[00:34:03 – 00:34:20]
And he said, yeah, but now we know. Now we know, Chris. And, you know, I was really struggling. I said, look, you know about that thing that you’ve missed, but it’s not as though your tax knowledge went from limited to complete. It went from limited to limited plus, right?

Chris McLemore:
[00:34:21 – 00:34:38]
And there’s still this whole range of things that you may be getting wrong. And I said, don’t you see how that can be a problem? And it didn’t dawn on him that he needed to do something. The phrase that comes to mind, how have I been complicit in creating the situations that I say I wish to avoid. I mean, that’s him all over, right?

Chris McLemore:
[00:34:38 – 00:34:49]
What am I doing to create this problem again? And that’s not getting the advice that I’ve been told I need is to shop around and take additional bits of information here and there. And so, you know, I wish to.

Richard Taylor:
[00:34:49 – 00:35:07]
Well, but Chris, this is one of the most frustrating things. One of the things we bang on about is that expats in America, specifically brits, for us, you don’t know what you don’t know. That’s one thing. But when someone is confronted with something they didn’t know, the repercussions of that, the non reporting of an inheritance, 25%. Right.

Richard Taylor:
[00:35:07 – 00:35:21]
Potential penalty. When you’re confronted with something you didn’t know and you’re confronted with the potential implications of it to then not be thinking, what else don’t I know? I just don’t know what to say to it. I don’t know what to do with that.

Chris McLemore:
[00:35:21 – 00:35:32]
Yeah, yeah. That was the penny that I was waiting to drop. You know that you have learned something, right. But more importantly, I think that the issue is this. Those returns might now be correct.

Chris McLemore:
[00:35:32 – 00:35:47]
I don’t know whether they are not, because I don’t have the numbers and I’m not an accountant. But what I know is that there is another problem that you won’t know about in the future, and you may or may not catch it, but that’s the value in my view. And this is true with any expert. It’s not just lawyers, it’s not just cross border accountants. Right?

Chris McLemore:
[00:35:47 – 00:36:11]
Expertise is expertise for a reason. But with a cross border accountant, it’s that they will spot those other issues in the future for you. You know, when it comes time for you to take a distribution for your pension, when it comes time for you to roll over your pension, any of these types of things comes up in the future, and it’s a different fact pattern than you have now. It’s going to be new territory. And those guys can issue spot that stuff all day long and they will keep you out of trouble.

Chris McLemore:
[00:36:11 – 00:36:19]
It’s not that they’ll get everything right because they’ll make mistakes too, but they will keep you out of trouble. And it makes you feel so much better having relied on somebody who knows what they’re doing, in my experience.

Richard Taylor:
[00:36:19 – 00:36:43]
But also if you’ve hired an expert, this is a different topic for a different day, but reasonable cause. You need to establish that the person you’re employing to help you out has got the requisite skills and experience. And if you’re working with a cross border professional and they get it wrong. You can say I told them everything and they got it wrong, and, you know, that’s a defense. Whereas if you’ve gone around the corner and found paid someone $200, arguably they don’t know anything about this stuff.

Richard Taylor:
[00:36:43 – 00:36:55]
Again, it gets a bit flimsy. But let’s just go back to streamline for a second. Let’s say we’ve spoken to someone, we’ve told them, you know, we’ve identified there’s an issue. We suggest streamline might be a solution to get into compliance. And they balk at the 5% penalty.

Richard Taylor:
[00:36:55 – 00:37:06]
And they say, well, listen, I’m just going to submit the last three or six years tax returns. Just submit them quietly and it’ll be fine. Or, oh, I wasn’t doing anything intentional, so I’ll just correct it going forwards. What would you say to that?

Chris McLemore:
[00:37:06 – 00:37:34]
Look, I mean, this is tough because as I mentioned earlier, you know, the 5% penalty can feel really disproportionate. You know, we used to do a lot more, but you just referred to as quiet filings and that’s what historically we called them as well. And they still get called that before the streamlined procedures came about. So certainly during that period when you had the offshore program for tax criminals and then nothing else, quiet filings were very common because people wanted to become compliant, but they weren’t willful and so it just didn’t make sense to them and penalties were huge.

Richard Taylor:
[00:37:35 – 00:37:42]
So just so people understand, quiet filing is just going back three or six years and just submitting amended returns outside of any program, just quietly filing them.

Chris McLemore:
[00:37:42 – 00:38:08]
Yeah, it just means submitting the returns outside of any program. It used to be that the London embassy had an IR’s office and they operated a kind of pseudo compliance program. It was either three or six years of back tax returns. And the difference, and this is how it was explained to me by a very senior lawyer when I was very junior, because the program went away not long after I started practicing. The difference between three and six years is whether you passed the smell test.

Chris McLemore:
[00:38:09 – 00:38:22]
It was kind of, should you have known better? Okay, six years, was it not? The big mistake? Okay, three years. But those three and six year numbers are often said to correspond with the statute of limitations period.

Chris McLemore:
[00:38:22 – 00:38:47]
So it would be three years normally, or six years if you had a substantial understatement of income on your tax return. But because it’s a quiet program, there’s no program. Some of the people file three, six, whatever it is, you know, there’s many different kind of iterations, but you just put the returns in and you pay the tax if it’s there, and you just see what happens. There’s a couple of issues with that. One is, let’s say you do have ten years of non compliance and it’s still open.

Chris McLemore:
[00:38:48 – 00:39:15]
There’s nothing that would prevent those previous years from being reviewed. The streamlined procedures, as we just mentioned, it contains that cap of years, which is, you know, I think, huge value, because if you’ve not been filing correctly for 15 years, six years, it doesn’t catch you up. That’s just an interim transaction. The other thing is that the penalties can be really severe, especially on the international informational returns. So I think people think about the f bar a lot.

Chris McLemore:
[00:39:15 – 00:39:40]
I mean, that was one that historically has been used. We talk about fear mongering, especially before the Supreme Court case that recently came out that said that the penalty is limited to $10,000 per foreign per year. Effectively, there used to be people out there trying to scare monger saying it’s $10,000 per account per year. There’s a six year statute of limitations period, but that’s still $60,000 per account. If you have ten accounts, do the math.

Chris McLemore:
[00:39:40 – 00:39:57]
It’s just huge potential penalty exposure. And that’s for non willful failure to file. If it was willful, it gets even higher. But it was a really easy way for people to say, look at your penalty exposure, man, you’re lucky to be talking to me because that’s just huge these days. The fbar is less of a boogeyman, I think.

Chris McLemore:
[00:39:57 – 00:40:23]
I mean, still, $60,000 is a lot of money, but that’s not the same as it was before. The other thing is, the FR penalty isn’t being assessed willy nilly, right. But other forms we are seeing penalty assessment, and one of those is one we mentioned earlier, the form 3520. Now, this form, it’s funny because it’s used to report two things. It’s used to report contributions to distributions from or ownership over a foreign trust.

Chris McLemore:
[00:40:23 – 00:40:50]
You might say, well, I don’t have a foreign trust, but if you have a sit, which is your holdover UK pension, it’s almost certainly structured as a foreign trust. It qualifies under the treaty, almost certainly for pension protection. So you get the tax free roll up, but it’s probably a foreign trust. And certainly all the us accountants here in London would be telling you, you need to file 35 20 to report that. So you’ve got, when you contribute 35% of the value of the contribution into that foreign trust.

Chris McLemore:
[00:40:50 – 00:40:59]
If you don’t report it on a form 3520 and there are other penalties for ownership. And again, ownership is just. I’ve got this Grantor trust over there. This is my pension. I need to report it.

Chris McLemore:
[00:40:59 – 00:41:26]
I didn’t. There’s a penalty in the total value of that thing. The other thing that the 3520 is used for is to report the receipt of a gift from a non us person. So if you, Richard, as a us taxpayer, if you’re a relative in the UK who passes away and leaves you money if that gift exceeds $100,000 in a year, so aggregate gifts from any one person exceeds $100,000 a year, you have to report it. So let’s say you get 500 grand.

Chris McLemore:
[00:41:26 – 00:41:37]
Very generous uncle. Somebody passes away, you have to report it. If you don’t, the penalty can be up to 25% the value of the gift. And it’s important to note the receipt of a gift is not taxable. That’s not a taxable event.

Chris McLemore:
[00:41:37 – 00:41:58]
So you should just take that 500 grand, you should invest it with Richard Taylor and, you know, the IR’s will get their tax on the income, but you might have to pay 25% of that 500 just because you didn’t report it. And the report under 3520 for a foreign gift is a one liner. I received 500k cash on this day. Hugs and kisses. End of.

Chris McLemore:
[00:41:58 – 00:42:19]
And we do see those penalties assessed. We had one situation where an individual had received some significant gifts for a parent so that this taxpayer could buy a property and invest in a business. So it was one and a half million dollars or something. The 35 twenties went in, but they went in late for various reasons. And by late, I mean just months late.

Chris McLemore:
[00:42:19 – 00:42:41]
And the taxpayer was trying to get everything, you know, done in a timely fashion. But there were some significant barriers that prevented that from happening. So this is a taxpayer tried to become compliant, just purporting the receipt of this money. There was no tax that was being left out. They went in, they went in just a bit late and penalty notices were raised, you know, in the end with interest, it was something like $450,000.

Richard Taylor:
[00:42:41 – 00:42:50]
They went for the full 25% for a few months late. No tax dodge. There’s nothing untoward going on. They just went straight in, 25% plus interest. Give us that money.

Chris McLemore:
[00:42:50 – 00:42:51]
I mean, it’s just.

Richard Taylor:
[00:42:51 – 00:42:57]
It’s unreal. This is what people don’t understand. They don’t get. They just think I’ve done nothing wrong. I wasn’t hiding anything.

Richard Taylor:
[00:42:57 – 00:43:08]
And because we’re used to coming from a world of 100 penalties for HMRC. They don’t realize, no, we’re talking tens, often hundreds of thousands of dollars, even if there was no tax due.

Chris McLemore:
[00:43:08 – 00:43:29]
Yeah. And the sensation that people talk about all of the time, they say to me, in a situation like that, 1.4 or 5 million was a lot, right? So let’s say it was, you know, 500,000, you know, or even 125,000, you know, obviously be a very generous gift, but that happens with not a lot of infrequency. And people will say, why do I need to file that? The IR’s isn’t looking for me.

Chris McLemore:
[00:43:29 – 00:43:49]
And the thing that I tell them is that it’s not about who the IR’s is looking for, it’s about who the IR’s finds. And if you’re that person who got found, 25% of the value of a gift from a non us person is going to feel like a lot. And knowing in the back of your mind that they weren’t looking for you won’t count for very much.

Richard Taylor:
[00:43:49 – 00:44:11]
Chris, I remember you saying that to me, and I’ve repeated it so many times, so many times, and I just, if I can just get this point across. People need to understand the penalty regime was subjected to here is very, very, very different to anything you used to. You don’t even have to have underpaid your taxes to be at risk of this. So just don’t find the next pile of Santa barrier heading. So that’s why you shouldn’t do a quiet disclosure.

Richard Taylor:
[00:44:12 – 00:44:17]
Is it the same advice just for. Oh, just, you know what, I’ll do the right thing from now. Now I know I’ll crack on from here. File forwards, right?

Chris McLemore:
[00:44:17 – 00:44:19]
That’s what it’s called, is it color there?

Richard Taylor:
[00:44:19 – 00:44:22]
I don’t know about my depth here. I don’t know where that came from.

Chris McLemore:
[00:44:22 – 00:44:42]
So just to be clear, there are cases where I think a quiet filing is appropriate. You know, this is all comes down to the effects and circumstances, so there’s nothing inappropriate with that, right? I mean, if you owe tax or you didn’t file a tax return, you’re supposed to, you can file it. I mean, it should be said that the IR’s, it’s discretionary. Whether they accept an amended return or not, they’re not obliged to you.

Chris McLemore:
[00:44:42 – 00:45:08]
But, you know, there’s nothing inherently problematic with filing an amended or a late tax return. In some cases, acquired filing might be appropriate on a filing going forward basis. It really just depends on what it is that they’ve missed. And people will make mistakes in good faith, and in some cases, they do decide to just start filing on a going forward basis. What they have to accept is that non compliance can linger in some instances for a really long time.

Chris McLemore:
[00:45:08 – 00:45:21]
So that’s going to have to be a calculated risk. And the thing is, with the streamline procedures, if you become audited, it’s done. You can’t then say, oh, thanks for getting in touch. I would like to enter the streamline procedure. That doesn’t work that way.

Chris McLemore:
[00:45:21 – 00:45:39]
You have to get there first. So it’s not exactly a race against time, but there is a timing element here to be considered. So if the non compliance is significant or the penalties are material, you know, what you’re doing by waiting is leaving open the opportunity that the streamline will be taken away from you unilaterally. Right. And the penalties assessed.

Chris McLemore:
[00:45:40 – 00:46:20]
Yeah, maybe you can argue, you know, reasonable cause and get the penalties abated or mitigated, but in that case, I mentioned to you with this $450,000 bill on the receipt of a gift from a non us parent, we got the penalty removed. It took four and a half years. So, you know, I’m a nice guy, you don’t want to foreign relationship with me. It’s just the stress because we didn’t know what was going to happen, you know, so the taxpayer, it was, they were mentally earmarking that money and not deploying it in the way that they otherwise would have for a significant period of time. And eventually we were able to get that one over the line, but there’s no guarantee.

Chris McLemore:
[00:46:21 – 00:46:27]
And it’s a heck of a lot of aggro. And there are professional fees, you know, because that requires high touch intervention.

Richard Taylor:
[00:46:27 – 00:46:44]
Chris, this is kind of going on topic a bit, but do you have a sense of why it took four and a half years to the uninitiated, it sounds like, oh, yeah, this happened. I engage a lawyer, will prepare a statement as to why I qualify for reasonable cause, job done. That you naively think, oh, yeah, pick up the phone, have a word of them, they’ll scratch it off, I’ll crack on with my life. What’s the reality?

Chris McLemore:
[00:46:45 – 00:47:00]
Well, I mean, in this case, the initial penalty notice came in 2019. So by the time we responded to it, it was a few months and then Covid. Right. And then the IR’s, parts of it shut down and then backlog. Right.

Chris McLemore:
[00:47:00 – 00:47:21]
So that might have been longer than it otherwise would have been, but it was also, you know, it gets into the nuance here. In this case, we first didn’t argue reasonable cause. The first argument was something different. We said, look, actually for technical reasons, it was filed at a timely basis. And that argument was actually just, they didn’t even address it.

Chris McLemore:
[00:47:21 – 00:47:35]
They said, we reject your reasonable cause argument. We said, well, we didn’t argue reasonable cause. We don’t think it’s late. And so then we had to get into reasonable cause. And each of those steps takes this huge lag back and forth.

Chris McLemore:
[00:47:35 – 00:47:46]
So I think Covid was a lot of that. I dont want to say that thats the kind of natural reaction time for the IR’s because thats disingenuous. But even a two year wait with that hanging over your head is a long time.

Richard Taylor:
[00:47:46 – 00:47:57]
Chris, the lesson here and on listening is you dont want this to happen to you. You want to be proactive. You want to take steps to avoid any of this happening. And if it does happen to you, its rarely a simple fix. So be proactive.

Richard Taylor:
[00:47:57 – 00:48:22]
Work with experts in advance. Chris, as we wrap up here, can I just spend a minute talking about willful and non willful? So non willful that is, you’ve been a naughty boy or girl, you want to avoid criminal prosecution, you go into the program, you mentioned non willful, you’ve got streamlined is hopefully an option for you. But it’s not quite as black and white as that, is it? As in terms of like people just think, oh, I wasn’t trying to dodge any taxes, therefore I must qualify for streamlined.

Richard Taylor:
[00:48:22 – 00:48:32]
But am I right in thinking there is some nuance to that? There are circumstances where perhaps you weren’t actively evading taxes, but you did other stuff that maybe means you don’t qualify for non willful.

Chris McLemore:
[00:48:33 – 00:48:51]
Well, you know, clearly it’s a case by case analysis. Willfulness is a high standard. Probably often it would be said to be an intentional violation of a known legal duty. There’s a lot in that ten word sentence. So clearly there is a gulf between willful and non willful.

Chris McLemore:
[00:48:51 – 00:49:06]
I think you’re right. And somebody said, well, I knew I should have filed, but I didn’t file because I didn’t think it mattered. You know, that’s starting to sound like willful. Known legal duty, check. Intentional violation, check.

Chris McLemore:
[00:49:06 – 00:49:30]
You know, so, but, you know, at some point you tip over on the scale. And so you’ll just have to talk through the scenario with the clients. You know, sometimes you say, when you pin them down, you say, were you really not filing it? Because you just couldn’t be bothered and they’ll say, well, no, actually, I didn’t know I had that specific filing. Like, maybe I knew I should have been pressing my accountant harder, but I didn’t actually understand the extent of my obligations.

Chris McLemore:
[00:49:30 – 00:49:56]
Now, clearly, something like willful blindness, where you’re intentionally not asking the questions because you don’t want to be told the answer, because if you are, then, you know, you have to do something that’s problematic. But I think, you know, there are a lot of cases where people didn’t really know what their obligations were to say. I had a lean, green sensation that I should have investigated, and I didn’t. You know, again, that might not be willful, right? They just didn’t know what they were avoiding.

Chris McLemore:
[00:49:56 – 00:50:20]
So I think it just depends on the clients. I think willfulness is quite a high bar. But at the end of the day, if you want to participate in this program, you have to write a statement kind of baring your soul and then sign that statement affirming that your behavior meets the legal standard of not a willfulness. So sometimes they’ll say, no, no, I’m totally not willful. You’ll say, are you willing to sign a statement to that effect?

Chris McLemore:
[00:50:20 – 00:50:21]
And they say, let me get back to you.

Richard Taylor:
[00:50:22 – 00:50:41]
I wasn’t familiar with the term willful blindness before I got involved in this line of work. And then through many, many conversations with clients and potential clients and just doing this job, it’s that concept that really, I think, could trip. I’m not the attorney. I’ve never dealt with the IR’s. I don’t know where the lines are drawn.

Richard Taylor:
[00:50:41 – 00:50:59]
I don’t know what constitutes willful blindness or not. I don’t know when seeking another pile of sand to stick your head under when that causes you to be willful blindness. But that’s what I see. I see people who may just forever choose to be blind to this. Or maybe they’re paralyzed for a couple of years out of fear and indecision.

Richard Taylor:
[00:50:59 – 00:51:14]
And it takes them two years, three years, four years to look up the courage to make a call. Sometimes it’s very obvious someone was intentional, and it’s very obvious that someone was purely accidental. And then there’s that middle ground where it’s just, you knew about this. Why is it taking you three years to do anything about it? Or you knew about this.

Richard Taylor:
[00:51:14 – 00:51:24]
Why are you still not doing anything about it? And that’s where I sometimes worry. And that’s why I just say to people, once you find out about this, deal with it. Speak to the experts. I’m not that expert, speak to them, get sorted, get in compliance.

Richard Taylor:
[00:51:24 – 00:51:29]
Good options exist for you. Probably fax and circumstances, as Chris says, and put it behind you.

Chris McLemore:
[00:51:29 – 00:52:02]
Or at least because, again, on certain things, there might be questions about whether a filing is required and you might be able to say, actually, we think there’s a good legal position here that you don’t need to do X, Y or Z. Right. But take that decision in an informed basis because the non informed decision to not file something because they’re not coming for you, or because it’s not a lot of money, or because you’ve never done it, or because you’ve made who doesn’t do it. That’s not an informed approach to these issues. And so I’m happy when people take advice and take a decision because then they at least know what their exposure is as well.

Chris McLemore:
[00:52:03 – 00:52:14]
Yeah, I mean, head in the sand is problematic, but even for those people, I think have a conversation with somebody because there could be a way forward or maybe your exposure isn’t that great, but if you’re not paying attention, you just don’t know.

Richard Taylor:
[00:52:14 – 00:52:31]
Fear stops a lot of people. Fear of the IR’s and fear of the cost involved in taking the course of action, whether it’s professional advice, fees, or tax and interest, or both. Fear is what I think stops a lot of people. And often, to your point, it would be a lot better if you just dealt with it and a lot less expensive. And you might not even be that expensive.

Richard Taylor:
[00:52:31 – 00:52:34]
And you’d remove this cloud from your life.

Chris McLemore:
[00:52:34 – 00:53:04]
Yeah. When you get correspondence from the government in this country, you might remember it comes in a brown envelope, unbleached paper envelope. When you look in the post, you know, it might not be HMRC, it could be your driver’s license or something, but there’s something here. You know, people refer to brown envelope anxiety, but it’s real engaging with that brown envelope, engaging with HMRC, engaging with the IR’s, that anxiety can really undermine people’s ability to take decision in action.

Richard Taylor:
[00:53:04 – 00:53:22]
100%. And we get a scan of our mail in the morning, but our mailman doesn’t arrive till like 515. And my wife now knows not to tell me if there’s anything from the IR’s in there. And I’m not expecting anything. I’m not worried about anything that, honestly, I’ve only ever received confirmation of address changes for their business or a check back, so I’ve only ever had good mail from them.

Richard Taylor:
[00:53:22 – 00:53:30]
But if she tells me there’s a letter from the IR’s in the mailbox or coming that day, that’s all I’m thinking about all day. And I work with a cross border professional.

Chris McLemore:
[00:53:30 – 00:53:31]
You’ve got nothing to hire.

Richard Taylor:
[00:53:31 – 00:53:38]
Yeah, I work with a cross border professional, so I do all the right things. And still, so I’ve got a massive sympathy for people. There’s.

Chris McLemore:
[00:53:38 – 00:54:15]
And I think this is where some of the empathy comes from. Right. Because if someone, before you got into this practice or you just told somebody in the street that the anxiety and the fear that people feel is so real that it prevents them from engaging, you would say, that’s crazy, just open the damn envelope. But when you hear on the phone or in person meeting people week after week who have the same story, they wanted to be compliant, they wanted to get back in charge, they wanted to get out in front of things, and they could not do it, you realize that those people aren’t, they haven’t all gotten together to tell you that story. That’s a real thing.

Chris McLemore:
[00:54:15 – 00:54:33]
Right. And so from that, I think, comes some of the empathy, because you’re dealing in some cases, not every case. Sometimes people just can’t be bothered with people who in many ways feel themselves prevented from helping. And so that’s where we see ourselves as trying to get them across that difficult moment. You just see it far too commonly.

Richard Taylor:
[00:54:33 – 00:54:47]
Great. Well, Chris, I think this is a great place to leave it. I hope this reaches people. I hope people listen to this and maybe it spurns people to take action and it relieves a burden from their mental state. I also hope that it means that you and I have to repeat ourselves a bit less.

Chris McLemore:
[00:54:48 – 00:54:48]
Right.

Richard Taylor:
[00:54:48 – 00:54:59]
Point people here first, and then we can talk about it rather than starting from scratch because there could be a lot of repetition involved in that, which is obviously fine. It’s part of the job and we’re happy to do it, but maybe it will warm people up.

Chris McLemore:
[00:54:59 – 00:55:00]
Exactly.

Richard Taylor:
[00:55:00 – 00:55:03]
Chris, thank you so much. Where can people find you?

Chris McLemore:
[00:55:03 – 00:55:26]
Well, our website is MK, as in Macklemore Kochnick, Mklaw, London. It’s all one word.com, and it has our contact details and information there. And, yeah, you know, people have questions or issues. You know, obviously, I’m happy to speak to them, whether it’s a domestic, streamlined issue or some other issue in particular related to international informational returns or other issues like we’ve discussed.

Richard Taylor:
[00:55:26 – 00:55:32]
Wonder bar. Well, Chris, thank you so much for coming on, talking about this. I hope you’ll come on in the future, talk about other stuff as well. And I appreciate you.

Chris McLemore:
[00:55:32 – 00:55:33]
My pleasure.

Richard Taylor:
[00:55:33 – 00:55:56]
Cheers. All right, folks, that’s another episode of we’re the Brits in America under our belts. Thank you for listening. I appreciate it and I appreciate you. If you’re enjoying the show and would like to support the mission, which is to help brits thrive in America, I’d ask you to subscribe to the podcast wherever you listen and also consider leaving a rating and a review.

Richard Taylor:
[00:55:56 – 00:56:20]
This stuff really does matter. Please help us get this information to the people who need it. That is your fellow brits living in America. Just a quick reminder that this show is brought to you by planned first wealth. We are a US based US UK cross border financial planning and wealth management firm and we help successful british expatriates living across the US to make the most of their opportunity and ultimately to retire happier.

Richard Taylor:
[00:56:20 – 00:56:41]
So if you’re a british expat living in America and you’d like to know more about what we do for people like you, you can find us at our website, www.planfirstwealth.com or you can look me up on LinkedIn. Do get in touch. We’d love to hear from you. As always, thank you to Sam Nash and the podcast guys for their help producing this episode and the entire show. See you next time.

Retire Happier.

Plan First Wealth Is A US/UK Wealth Management Firm Serving Successful British Expats in America With at Least $1M net worth Make the Most of their Opportunity.

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