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 Pressreleases 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:
| 10th percentile |
25th percentile |
Median | 75th percentile |
90th percentile |
|
|---|---|---|---|---|---|
| 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.
Quiet disclosures
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.
Impressive research. Horrendous result.
Low hanging fruit is the standard tax collector method.
Median $ 600,000 means that they have gotten exactly who they are targeting: 50 yr old “rich” “global elites,” ie, people who are responsibly preparing for retirement and who had been doing their best to be “compliant”.
Thanks for the alternate headline than what is being placed on Huffington Post, amongst others…
I had linked to the GAO report on my Drudgery post too.
It is still not clear if there is a difference between Americans in the mainland who have hided foreign accounts and Americans living and working abroad who have savings and investments with money earned in the foreign country. Also GreenCarders who have accounts back in their country of origin with moneys earned there are treated the same as Americans in the main land who hide money in foreign accounts. One size fits all. Americans living and working abroad as well as greencarders were trapped suddenly. Citizenship based taxation is perverse.
GIGO: Garbage in, garbage out.
My lawyer told me yesterday, that of the 50 or so OVDI cases he’s handling, 15 so far have been moved to Streamlined by the IRS themselves.
The reasons for which Streamlined was created today would have existed during any of the past OVD’s. Based on this current set of circumstances, the GOA should now be asking themselves what courses of action were available to USP’s in the past in the absence of Streamlined.
This also says nothing of the fact that taxpayers may have their cases reexamined under Streamlined even if they completed another offshore voluntary disclosure program, such as OVDP.
@Eric
Thanks for your careful research.
My take is as follows:
This GAO report (coupled with your patient analysis) is wonderful news. Slowly the US, through its own words, is revealing its attitude of presumption of criminality toward US and dual citizens abroad.
At the same time, the US is trying to get countries (with resident dual citizens) to sign IGAs. The GAO report demonstrates what will happen to their dual citizens if those countries co-operate with FATCA.
This post and the GAO report should be sent to the governments of all countries that are “negotiating IGAs”. If this doesn’t open their eyes, then nothing well.
Included also should be this post written by Jack Townsend in August of 2011:
“Of Fear and Hostages: A Mid-Sight Editorial on The OVDI Program and Extortion (8/1/11)”
http://federaltaxcrimes.blogspot.ca/2011/08/of-fear-and-hostages-mid-sight.html
It begins with:
“I write tonight an editorial comment on the OVDI program (and the OVDP program as well). Hindsight, they say, is always better than foresight. When the IRS designed these programs, the IRS did not have the benefit of hindsight. Nor, of course, do I have the benefit of hindsight. I must address the program mid-sight, which is where we are.
My mid-sight view of the OVDI (and its predecessor OVDP) is that it has some very rough edges — some basic unfairness issues that the IRS should move affirmatively to address and resolve. I doubt that the IRS will listen to me, but I offer my views anyway and hope that the IRS or Congress will listen — not because this is my issue but because the concerns I address are the concerns of many people who are hurting because of the way the IRS is administering the program and because of fears as to the way the IRS will administer the program.”
Read on. It is required reading for those trying to understand the “FBAR Fundraiser”.
@Eric,
All I can say is, thanks. Your work and that of so many others here is outstanding. Shameful that reality falls on deaf ears.
Unfortunately, the number of “morons” commenting in that article exceeds the number of brain synapses firing. All I heard was “Everyone should pay for the benefits we enjoy as Americans”. The entitlement reek just disgusts the hell out of me.
animals comment I Think is about the Bloomberg article page, where the comments indeed represent the Will of the People, which means, we are screwed.
I can’t get the report to download, so I am relying on the summary.
I am trying to Think through this GAO report, where the police state Revenue service is trying to kill off quiet disclosures, whilst pushing OVDP people out into Streamlined compliance procedure.
I guess it means that if you declare Everything you have ever done during the last 6 years, and your banking and Residence Life is so Clean that you have only lived and banked in one country, than you might pass the graces of the IRS.
Anyone who has lived in more than one country and has used more than one banking system, or anyone else not fitting the narrow definition of Clean is going to get screwed big time.
No way out.
@Mark and @Animal, I don’t think it’s as grim as all that. I’d imagine that what we’re reading is propaganda written by nodding donkeys for journalists; The low IQ and naivety of the comments doesn’t help either; I’d imagine that the IRS themselves are more aware of the nuances which could explain why they’re, without prompting, already moving minnows from OVDP into Streamlined. Nina Olson certainly is aware!!
I would guess that minnows who’ve made clean quiet disclosures up to now should generally be OK though agree that once the IRS starts receiving FATCA account information in April 2015 that things could change from there onwards. But we have to also remember that FATCA is still NOT yet a done deal!!
I’d guess that bonafide expats and accidentals making quiet disclosures or go forwards (assuming they’re completely honest and without willful intent to evade taxes) will be processed without too much fuss because the IRS will have to focus on whales. If they’re going to focus on minnows, they’d focus on residents in the U.S. hiding accounts offshore.
My impression is that the press are gagged or bribed somehow as part of the propaganda machine.
However, though I say this, I still think it’s realistic with the deteriorating climate to expatriate if you can.
@Mark Twain
Yes, what will be the choices for anyone considering coming forward if QD is cause for a tar and feathering? I’m in OVDI, likely won’t be pushed out into Streamlined but clearly have a strong case for reasonable cause. At least I can opt out of OVDI. What would be my options today? Enter Streamlined and hope that the IRS doesn’t detect ‘sophisticated tax planning’ in our submission and open us up to an unlimited number of years of tax returns because we’ve never filed before? Enter OVDI with the intention of opting out? Seems like a horrendous waste of resources for all parties concerned.
@monalisa1776
I don’t care so much about journalists, it’s supposedly credible information like the report from the GAO that result in Congress creating brilliant legislation like FATCA.
If the first 8938 gets missed, things get a lot hotter.
The concept of getting pushed out of one’s own country is not palletable.
Define innocence so narrowly that very few qualify, and brand EVERYONE else as the most egregious type of tax evader so you don’t ever have to worry about anyone getting off more lightly than they deserve to be.
So grateful for your analysis and research @Eric, and for everyone’s information sharing.
@bubblebustin, that is very interesting re those being proactively steered by the IRS from the OVDI into Streamlined. Now if they would agree to only take into account the same number of tax years in question for both those who should never have been in the OVDP and the OVDI – but were given no alternative in 2009 and 2011, as well as those who enter the Streamlined directly – and are judged only on their 3 years of returns. That would be far more just. If the IRS is trying to belatedly adjust their ‘one size fits all’ punitive compliance demands, it should apply the eased rules retroactively. Otherwise, those who bared far more years still have more years exposure than those who came forward since September 2012.
@badger
Thank you for bringing this up because this possible discrepancy in treatment has been a real concern to me, as it would apply directly to my husband’s and my case.
Had I decided to come forward today under Streamlined instead of when we first heard about our filing obligations, we may have saved ourselves a great deal of grief and a significant portion of our retirement savings in OVDI. But hindsight is always 20-20 isn’t it? We at the time felt that any delay in action may actually work against us, should the situation grow worse for USP’s abroad outside of OVDI or because of the implementation of FATCA.
According to our lawyer, there is still no guarantee that we would have been accepted into Streamlined today because of the complexity of our tax situation (what the IRS might consider ‘sophisticated tax planning’) although we meet all of the other criteria for the last 3 years. Under OVDI, the only year we would have incurred any tax liability was when we sold our house in Canada, which falls outside of the 3 years we would be judged by under Streamlined, as you say.
From what I’ve read, people who are moving from the OVD programs, past and present, into Streamlined are either having penalties waived or refunded to them. I haven’t read anything about actual tax refunds. Those presently in OVDI who the IRS determine to qualify for Streamlined are being moved without any initiation by the taxpayer. I understand that when making this determination, the IRS will look at each and every 8 years of the OVDI submission prior to making making its decision. Considering the IRS is already screening OVDI submissions for entry into Streamlined, it would be redundant to request that ours be also screened, as the fact that we haven’t been moved to Streamlined indicates that we did not qualify. However, I don’t want to make assumptions, and depending on our outcome, I may want the IRS to go through the exercise anyway and tell me exactly WHY we didn’t qualify.
The million dollar question is: will we be treated with prejudice now that the IRS has received tax and penalty from us under OVDI when we may have owed no tax or penalty under Streamlined? NTA Nina Olson stated that benign actors were being misled into OVDI, will this injury cut even deeper when further actions by the IRS create a situation where taxpayers in what would have otherwise been identical situations receive different outcomes? Stay tuned.
@Bubblebustin, I see what you mean. I just earnestly hope that things will work out for you!!
I find the tone and import of the GAO report outrageous. As if the only reason one would have a bank account “onshore” of one’s residence would be to evade taxes…
Nevertheless, I think the penalty statistics on the minnows are probably skewed toward higher penalties. In the 2009 OVDP, those “low risk” minnows who were fairly certain no penalty would be applied under the provisions of the IRM (reasonable cause, for example) were likely to opt out. The GAO report doesn’t seem to include the fate of the opt-outs. It’s as if they don’t exist. But they do.
Was not counting or even mentioning the opt-outs intentional? Possibly, as it makes dastardly account holders look more evil. And hides the fact that innocent minnows were persecuted for years for no reason at all, thanks to the bait and switch.
the 600k median amount indicates not whales, but people who are getting Close to the magic million dollars needed for a comfortable retirement. $600k is not an amount that would be adequate for frequent trips to Bermuda or Cayman or whereever they say that people are hiding their Money.
@monalisa1776
Thanks. On the bright side, I don’t think things can get much worse for us (cross fingers). I wonder what NTA Nina Olson would say about our case. Should I ask her?
@Sally
Would it surprise anyone that an accounting office could get their numbers wrong? The GAO is probably as corrupted by politics as any other American governmental office. Considering how we have been mis-portrayed, I don’t believe much coming out of anyone’s mouth down there. The US’s top-down approach to solving problems only seems to exacerbate them. There’s my ROTD (rant of the day), thanks for listening.
@bubblebustin,
Yes, you definitely should ask Nina Olson. And, it will be honing your ‘arguing your case’ skills (which are significant in my view).
@bubblebustin, re; “……Those presently in OVDI who the IRS determine to qualify for Streamlined are being moved without any initiation by the taxpayer. I understand that when making this determination, the IRS will look at each and every 8 years of the OVDI submission prior to making making its decision….”
Does ‘moved’ mean they are being formally ‘opted out’? Or some less onerous or less formal process? The letter from Steven Miller with guidance about the opt out process from the OVDP and OVDI programs was dated June 2011 http://www.irs.gov/pub/newsroom/2011_ovdi_opt_out_and_removal_guide_and_memo_june_1_2011.pdf .
But that is dated a full year before the formal announcement (June 2012) that the Streamlined procedures were coming, and soon to be almost 2 years before this current situation.
I do think you should write to Nina Olson if it won’t prejudice your case. Particularly since if the terms of Streamlined, or even the December 2011 factsheet meant that the year of the sale of your house would have occurred in a year that was not mandated – that would have made a big difference.
If the Streamlined program and the December 2011 factsheet had been issued prior to all the IRS statements herding everyone into OVDI and away from emphatically condemning quiet filings (and ‘filing going forward’?), then those who are currently asking to be moved, and being moved pro-actively out of the OVD and into Streamlined would have incurred substantially less costs expended in ‘Life Credit Units’ (Just Me’s ‘LCUs’) and ruinous professional fees, and encountered less potential exposure from the extended period of years in question.
So I still ask; with the actions now seeming to recognize that many unwary and unsophisticated minnows were threatened and pushed into OVDP/I, and some being moved by the IRS out into Streamlined, with the possibility of re-examination and refund of penalties for those with closed cases – how can they still justify treating all minnows in OVD who qualify for Streamlined the same as the ‘whales’ in terms of the years in question rather than the three years of returns required by ‘Streamlined’ of the minnows who came forward later?
Jack Townsend is getting into the Stats of this report too…
More on the GAO Report on IRS Offshore Disclosure Initiatives (4/27/13)
Given the scope of the report, I will only present certain select issues. I strongly encourage those with a particular interest in this general area to read the entire report to mine their own nuggets from it. Where I quote, I omit footnotes. However, footnotes are important for those wanting to dig into the report.