On Friday, the Government Accountability Office released a new Report to Congressional Requesters on “Offshore Tax Evasion”, which warns that the “IRS Has Collected Billions of Dollars, but May be Missing Continued Evasion”. It provides more in-depth information about the characteristics of OVDP participants, and also reveals some details about the treatment of (and government attitude towards) people who make quiet disclosures.
For those U.S. Persons abroad too busy or in too good a mood to deal with the depressing drudgery of being insulted by the GAO for seventy-two pages, Stephen Ohlemacher of the Associated Press
releases has helpfully regurgitated the contents of the report and all its fallacious assumptions, without bothering to commit any actual journalism such as, you know, interviewing actual “offshore” voluntary disclosure participants who have been well and truly screwed for daring to save where they live (as Amy Feldman did back in 2011), or breaking down some of the appalling statistics in the report.
Who were the actual OVDP participants?
The first question we all at the Isaac Brock Society have about OVDP participants: how many were home-grown Whales, how many were immigrants and immigrants’ kids with money in the old country, and how many were emigrants or accidentals residing abroad for decades? Well too bad, the GAO can’t tell you and they clearly don’t give a damn anyway. While the word “offshore” appears on literally every single page of the report besides the back cover, the word “immigrant” is mentioned on precisely two pages, and “expatriate” and “abroad” appear zero times. The sole discussion of immigrants:
In our case file review, we found examples of immigrants who stated in their 2009 OVDP applications that they were unaware of their FBAR filing requirements. We found they had often opened banks accounts in their home country prior to immigrating to the United States. IRS officials from the Offshore Compliance Initiative office stated that although there are several FBAR education programs, none are specifically targeted at new immigrants. Furthermore, these IRS officials were unaware of any IRS work with other federal agencies such as the State Department or the Department of Homeland Security to educate recent immigrants about their foreign account filing requirements.
Okay, so why not?
These officials stated that one of the challenges that they face in their office, which is part of IRS’s Large Business and International Division, is that taxpayer education and outreach is the responsibility of IRS’s Wage and Investment Division and that issues concerning FBARs fall under IRS’s Small Business/Self-Employed Division.
Yeah, that’s a really good excuse for ruining people’s lives: “not my job, I’m just following orders!”
Statistics on minnows in the OVDP
At page 13 of the report, in the table “Selected Penalty Information for 2009 OVDP Individual Taxpayers with Closed Cases as of November 29, 2012”, one of Just Me’s long-standing questions is partially answered: how much of the much-touted $5.5 billion collected by the OVDP consisted of actual tax owed, and how much was penalties? I reproduce the relevant portion of the table here, and add my own calculations of certain ratios (in italics) in the bottom two rows:
|Offshore account(s) balance||$78,315||$190,365||$568,735||$1,595,805||$4,054,505|
|2009 OVDP penalty||$13,320||$35,670||$107,949||$310,476||$793,166|
|Additional tax owed, tax years 2003–2008||$103||$1,661||$12,748||$60,449||$190,399|
|Ratio of penalty to tax owed||129||21.4||8.46||5.13||4.17|
|Penalty as proportion of account balance||17.0%||18.7%||18.9%||19.4%||19.5%|
This is Tax Justice, American style: just as the law prohibits both the rich and the poor from sleeping under bridges and stealing crusts of bread, both the rich and the poor paid between a sixth and a fifth of their account balances as Offshore Penalties for an indulgence against the unpatriotic sin of daring to save outside the Land of Milk and Honey, not even counting the extra tens of thousands of dollars of lawyers’ fees. We’re talking about retirees and people nearing retirement (over half of OVDP participants were above age 55) who in four decades of working had managed to save five figures and were expecting to be able to use it to enjoy their golden years, or for the younger ones to use it as a down payment on a house so they could start raising a family — not to pay thirteen thousand percent penalties to the government of a country they don’t even live in — in some cases, a country from which they had emigrated decades ago as teenagers or in which they had never lived at all.
In plainer language: thousands of middle-class immigrants and emigrants owed Uncle Sam less than three hundred dollars of back taxes per year, and for that the IRS put them through a nightmare involving tens of thousands of dollars of penalties and lawyers fees, and threats of criminal charges and jail time if they dared to exercise their right to opt out. This is not tax collection; this is asset confiscation, plain and simple. But don’t expect that the U.S. mainstream media will ever report on this; they’ve spent too long demonising everyone with “offshore accounts” as giant tax evaders living it large to ever go back and publish apologies for all their propagandistic lies.
This of course won’t matter at all to Homelanders, who will continue screaming for traitorous emigrants to be stripped of all their assets and thrown into jail over two and three digit annual income tax deficiencies. One wonders how many of those selfsame Homelanders have similar levels of use tax deficiencies — apparently quite a few, given the “internet sales tax” bill in Congress right now — and how many would agree that they should face five-figure fines for that.
The other part of this report which may be interesting to friends of Isaac Brock: the GAO’s statistical tools for detecting Quiet Disclosures.
To assess IRS’s efforts to detect quiet disclosures, we used IRS tax return data from the tax years covered by the 2009 OVDP, tax year 2003 through tax year 2008, to identify potential quiet disclosures and compared our results with those from IRS. We also used tax return data from tax year 2003 through tax year 2010 from IRS and Report of Foreign Bank and Financial Accounts (FBAR) data from the Financial Crimes Enforcement Network (FinCEN) to assess other ways taxpayers may be circumventing some of the taxes, interest, and penalties owed.
At page 23, they go on to discuss why quiet disclosures are the root of all evil, and reveal that they have been able to detect a far higher number of Quiet Disclosererers than those lazy chumps at the IRS managed. (No word on the false positive rate of their methodology, nor the actual tax owed).
Quiet disclosures matter because if IRS does not identify them, it undermines the incentive to participate in the offshore programs. IRS’s offshore compliance enforcement efforts, including the offshore programs, deter taxpayers with noncompliance related to current offshore accounts, or offshore accounts that might be opened in the future. If taxpayers are able to quietly disclose and pay fewer penalties than they would have in an offshore program, the incentive for other noncompliant taxpayers to participate in a program is reduced. When quiet disclosures remain undetected, they also result in lost revenue for the government. Further, if quiet disclosures remain undetected, then IRS will not have information on the characteristics of these taxpayers and their accounts— characteristics such as bank names, country names, and promoter names—used to build cases against others.
We identified 10,595 potential quiet disclosures, a number much higher than the potential quiet disclosures identified by IRS.28 In a series of Questions & Answers that IRS first released on February 8, 2011 to announce the 2011 offshore program, IRS reported that it had identified, and will continue to identify, taxpayers attempting quiet disclosures. In the Questions & Answers, IRS stated that it would be closely reviewing amended tax returns to determine whether enforcement action is appropriate.
Of course, harassment of people making quiet disclosures — in a good-faith effort to comply going forwards without the ridiculous waste of money on tax lawyers to herd them through the OVDP — may also affect the incentives to come into compliance at all. In contrast it will greatly increase the incentives to “ostrich” behind a passport with a non-US birthplace or renounce and wave your middle finger at the IRS, while warning everyone you know about the dangers of moving to the US rather than any civilised country in the world which doesn’t treat immigrants who dare to keep money in their old countries as criminals — but don’t expect the GAO to understand such a sophisticated concept as “blowback”.
In a footnote in 8-point font, the GAO is forced to admit:
Only an IRS examination can determine actual quiet disclosures and there are many reasons why a potential quiet disclosure may turn out to be something else. According to IRS, these include taxpayers who had legally paid taxes on their offshore income, but had not previously filed FBARs, and who were paying additional taxes with their amended returns for reasons unrelated to the offshore accounts and newly filed FBARs.
But with that stupid little caveat out of the way, the demonisation can resume! Throughout the entire report, the GAO keeps pounding the table with the fallacious idea that everyone who dares to have an account outside of the US is gaining some unfair benefit at the expense of The Murican Peepul. This is best illustrated by Appendix IV, “Hypothetical Examples Comparing Account Balances, Length of Account Ownership, and Penalties Comparing Account Balances, Length of Account Ownership, and Penalties”, which compares the annual returns achieved by a person who pays U.S. taxes with a person who holds an “offshore account” and of course therefore pays no taxes whatsoever — since of course there is no other country in the world an “offshore account holder” might be residing in that would also levy taxes on bank returns.
In Appendix I, they finally get to their methodology for detecting Quiet Disclosures:
To assess IRS’s efforts to identify taxpayers who may have attempted quiet disclosures, we used the same datasets that we used to identify the 2009 OVDP population, as described above, plus FBAR data from FinCEN. To determine the reliability of FinCEN’s FBAR data, we reviewed relevant documentation, conducted interviews with FinCEN officials knowledgeable of the data, and conducted electronic testing of the data to identify errors or outliers. We determined that these data were sufficiently reliable for our purposes. To identify potential quiet disclosures we conducted a three-step analysis. First, we used IRS tax return data to identify taxpayers who filed late or amended returns for the applicable 2009 OVDP period.
We then used FBAR data to identify taxpayers who filed late or amended FBARs during the same time period to create a combined list of taxpayers. Finally, we removed from this combined list any taxpayers that we had previously identified as 2009 OVDP participants. The remaining taxpayers constitute our population of taxpayers who potentially “quietly disclosed” offshore accounts. From this population, we used data from amended tax returns to identify whether the amended returns had positive adjustments to income, and whether taxpayers filed amended returns for multiple years. We confirmed this methodology with IRS officials. The results of our analyses are shown in appendix VIII.
The most hilarious part: when you go to Appendix VIII, unlike the rest of the report you do not see any dollar amounts whatsoever, simply vague references to “positive change in tax liability” among people who filed late or amended FBARs. That tactic of lumping together late FBAR filers and amenders is itself rather amusing — by definition, an amender is someone who knew about the requirement to file before, whereas a late filer might be someone who heard about FBAR for the very first time in his entire life of living outside the U.S., and sent in the forms as soon as possible in a good-faith effort to “do his duty”.
But of course, actual facts must not be allowed to interrupt the drumbeat against evil Quiet Disclosererers. If you didn’t already understand the U.S. government’s attitude, well, as Phil Hodgen would say, consider this report a gentle tap with the clue stick.
@Just Me, they don’t have to use the Tax Cheat theory to show that $17000 of penalties for $100 of tax due is extortion.
@Edelweiss, good analysis. So yes, their number might be a bit overestimated, but in the ball range, especially, if you take into account the penalties they would rake up along with the unpaid tax!
But, in our unfocused manner, we continue to let the FATCAnatics at Treasury and the IRS define the battle as against Tax Cheats…
We have to come up with a common, short and sweet, answer to that that will resonant with a larger audience and journalist.
I am still thinking and working on it.
Start reading here. I think I might do a post on this subject, if I can find the time..
And with fewer people living abroad left to tax, the projected revenue will shrink even further. Did it not occur that people will simply renounce? Or were they thinking of us at all?
That’s why Robert Stack can’t admit that FATCA is causing people to renounce – it proves the method by which they are going to collect revenue is contributing to its futility. Maybe he needs to admit that the prediction of collecting billions of dollars in revenue is a self-defeating prophecy.
@Bubblebustin and @Edelweiss, I’ll bet that a much higher percentage of US Persons abroad would end up still owing taxes due to widespread investing in mutual funds (PFIC taxation) and from capital gains in real estate….so from that angle, I can see why the IRS are becoming more aggressive in seeking out non-filers.
Nothing like the element of surprise to help fatten those coffers!
• New E-Verify requirements: E-Verify, the Department
of Homeland Security’s online system for determining an employee’s eligibility to
work in the United States, caught the attention of government contracting and
subcontracting companies this year when, as
of September 8, 2009, the government began mandating E-Verify requirements
for contractors and some subcontractors working under certain
types of government contracts. The easiest way to avoid employee classification errors is for employers to maintain a clear understanding of
the factors that determine an employee’s status as 1099 or W2, and the differences between the two.
Two major updates in employer verification this year were:
MUST READ further detailed analysis on GAO report…by Patrick Martin
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Another author / blog coming to the realization of what we have all known…
and this one…
$1.3 billion in revenue for the government’s “coiffures”. That’s a lot of hairstyling, lol.
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pfffffffffffffft, bunch of amateurs. $36.5 million? The FBAR scam, also run out of Pennsylvania, got BILLIONS for its masterminds.
And on a serious note, the climate of fear created in the Indian-American community by FBAR enforcement run amok contributes to the success of scams like this.