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.
Why do they not realize the message they are sending? Could none of the US powers that be see this? Governing by fear mongering.
@Joe Smith,
Repeat after me,
I am calm because:
1. CCLA is behind us.
2. The Charter supports us.
3. The Green Party is very behind us.
4. Other political parties are supportive as well.
5. I am a member of a credit union and can only be removed by a vote of Board of Directors.
6. IGAs call for electronic search up to 1,000,000. If I ever got close to that, I would split accounts.
7. Why would I ever visit a nation that is persecuting me and my family?
8. When I became a Canadian citizen, I intended to relinquish. Prove otherwise.
9. I am on first name basis with my MP.
Feel better?
Seriously though, the way that US is conducting its ‘war on offshore tax cheats’ is so ridiculous. It just too asinine to be real. Can’t they see that most of us with offshore accounts also live offshore? Why is this so damn hard to understand? It makes me think that they understand perfectly well, and don’t give a crap. We are a source of money to them, and they hide behind their archaic laws (i.e. citizenship based taxation) as justification to confiscate money earned and already taxed outside of USA.
Give your head a shake USA. Do you really think 1 million Canadians (and 6 million expats worldwide) are just going to bend over happily?
@ Joe, can we add another point to your list? How’s about: Don’t feed the (USA) animals.
Let’s call FATCA what it is. It’s “EXTORTION” and what calgary411 and I are going through as well as any other family with a disabled child who ends up being classified as a dual (due to their disability have no way of understanding renunciation and are held indefinitely – “KIDNAPPING”. Which I believe is against the United Nations Charter.
In my books, telling a mentally disabled child that he cannot expatriate because “he does not understand the ramifications of his action” is tantamount to keeping a child hostage from removing a citizenship that is abusive,. http://www.un.org/en/ecosoc/docs/2009/resolution%202009-24.pdf – This should be what protects our family and allows the disabled child to be able to renounce their leech-like US citizenship. The only benefit that I can see is sheerly in the benefit of the United States government to keep taxing disabled citizens and squander their finances while stating that they cannot renounce because they don’t “understand”. If this isn’t an absolute example of “kidnapping”. I don’t know what is.
I just about spat my coffee out when I read the GAO’s tag:
Accountability Integrity Reliability
UNCLASSIFIED (U)
U.S. Department of State Foreign Affairs Manual Volume 7
Consular Affairs
7 FAM 1290 Page 4 of 11
UNCLASSIFIED (U)
e. Parents, guardians and trustees cannot renounce or relinquish the U.S. nationality of a citizen lacking full mental capacity: A guardian or trustee cannot renounce on behalf of the incompetent individual because renunciation of one’s citizenship is regarded, like marriage or voting, as a personal elective right that cannot be exercised by another. Should a situation arise of the evident compelling need for an incapacitated person to relinquish citizenship, you are asked to consult CA/OCS/L for guidance.
“Because renunciation of one’s citizenship is regarded, like marriage or voting, as a personal elective. And due to the fact that a) marriage requires being of sound mind, most mentally disabled adults do not get married or form a marriage bond. b) pretty much mentally disabled persons do not have a voice because of this. They are kept muffled and shuttered while their tax dollars get eaten up.
And that’s the disgusting thing about it is the simple fact that disabled citizens cannot lose their US citizenship to get rid of the leech (the US Government) that sits in their wallet draining their funds. And that is why I call it kidnapping. Holding someone hostage whether knowingly or unknowingly for financial advantage is exactly that: KIDNAPPING and should be punishable to the fullest extend by the UN Charter.
And, to add to Animal’s comment, from a comment of mine made some time ago at Isaac Brock:
This is not something Canada or any other country has any control over — US law for the protection of US citizenship. Why is there not a choice? Why cannot Parents, Guardians, Trustees make this choice? To not be able to do so is a prime example of US entrapment — extortion — kidnapping.
@bubblebustin, re “The Taxpayer Advocate reported that the OVD programs were “burdensome, punitive, one-size-fits-all approach designed for “bad actors” applied to “benign actors” who inadvertently violated the rules”. ”
If they force benign minnows in OVD who they themselves at the IRS proactively identify and move out, but still force them to be judged on 8 years worth of past returns in order to be considered under the ‘Streamlined’ process, while allowing equivalent minnows who came forward more recently to go directly into the same Streamlined program with only 3 years, they of course have rigged the result towards a ‘higher risk’ determination for those that they themselves have decided don’t belong in OVD etc.
And in terms of equity: what would a US resident minnow have to do in order for it to be mandatory for 8 years worth of returns to be subjected to this level of scrutiny in the absence of any US tax owed? The system of compliance designed for those living abroad is so heavily rigged towards punishment, extortion and confiscation that it has to be deliberate – a revenue raiser in lieu of the lack of US tax that can be assessed.
If I remember correctly, Jack Townsend and others have said that there isn’t a legal duty to fix the past. The IRS pretends that ‘compliance’ and ‘bringing taxpayers back into the system’ is what they want. If so, then forcing some minnows abroad to file and defend 8 years worth of back returns and reporting forms is certainly not about fostering compliance going forward, or getting someone ‘back into the system’. It’s about fleecing them before they get out the door for good. It’s about bullying those minnows they have in their grasp – like a proxy for those they either don’t dare to pursue, or who seem like too much work to find at home in the US.
@badger
Yes, it would seem that my husband I may just be punished for coming forward when we first heard of our obligation to file US taxes, rather than have waited. What would this development do for those who wrestle with coming forward or not? Should they hold out for something better than possible financial ruin, therefore becoming willful tax evaders where financial ruin is almost an assurance?
This leads me to an earlier remark of yours I’ve been ruminating over:
“…with the actions now seeming to recognize that many unwary and unsophisticated minnows were threatened and pushed into OVDP/I…”
In our decision to enter OVDI, we were sophisticated enough to be wary of the repercussions we might suffer should we not make an effort to comply upon first learning of our tax filing obligations. Should anyone’s integrity be compromised by the lack of integrity of their opponent? The IRS misled us, the NTA called them on it. The chips will fall where they may. Will justice prevail, or will the US government’s behaviour continue to contradict everything they claim to be?
Those are significant questions you raise, bubblebustin.
Should anyone’s integrity be compromised by the lack of integrity of their opponent? The IRS misled us, the NTA called them on it. The chips will fall where they may.
Will justice prevail, or will the US government’s behaviour continue to contradict everything they claim to be?
@Calgary411
I expect blowback on that, in that it may be a show of integrity to defy a tyrant.
@bubblebustin, I don’t expect justice to prevail. Why would I hold anyone facing the lions in this arena to adhere to standards that the US does not uphold or respect itself? The US has showed zero integrity – and a total lack of ethics and morality.
All is silent from the US except for the threats and propaganda.
Tells me all I need to know about what to expect in the future.
Unfortunately many of us have come to the same conclusion much too late.
@bubblebustin, re “many of us have come to the same conclusion much too late”.
How excruciatingly wrong we were.
I wish I had not been born a US citizen.
@Bubblebustin
@Badger
Do you remember that great line from the movie “Billy Jack”:
“When policeman break the law, then there is no law, just a fight for survival”.
The only “Enduring Law” is law that is rooted in morality – something that the U.S. will never understand. We are witnessing the crumbling of America. You can’t be a leader unless other countries respect you.
America is like a chicken with it’s head cut off – everybody realizes the chicken is dead except for the chicken.
@Royberg
Re: your comment on April 28 6:31 p.m. http://isaacbrocksociety.ca/2013/04/27/gao-report-reveals-ovd-minnows-paid-up-to-129x-more-in-penalties-than-in-tax-owed/comment-page-2/#comment-308077
What part of the report are you reading?
@Badger
You say: “I wish I had not been born a US citizen”.
You had no choice. How do you think the people who are naturalized or have green cards feel? Stupidest decision they ever made.
@USCitizenAbroad
I can honestly say my decision to become a naturalized US citizen (via marriage) 20 years ago is by far the biggest regret of my 50 odd years on this planet. I lived there for just over 4 years only. Unfortunately, the scourge has also been transmitted to my (so far unknowing, as they are too young) children.
I console myself with the fact that there appeared to be no downside at the time and no-one could have predicted the persecution to follow.
@ USCitizenAbroad –
p. 24, 25 refer to the likelihood that a taxpayer has made a quiet disclosure when he: a) files a late or amended return; AND b) files a late or amended FBAR.
The Report doesn’t state that the foregoing should or must be the audit standard, but it makes a compelling case. Since IRS has agreed with the analysis, conclusions, and recommendations of the Report (see p. 61) I think it is reasonable to conclude these factors will play a large role in determining audit.
Why is the IRS so fast at acknoledging this report while keeping ignoring Nina Olson’s recommendations in her report to congress. The IRS can implement her recommendations without requiring new laws by congress. Her recommendations make sense. Why aren’t they listening to her?
Why isn’t there any analysis of how much more revenue they would get if they educated people and encouraged QDs, instead of demonizing them? This is just incredible.
What the report shows and that they don’t really point out, is even with the large increase in QDs, FBAR filing and foreign account declarations are far away from the level they should be. They could make tons more money by “advertizing” QDs to the right people and bring more people into compliance. That’s the goal they claim to have. Yet, they want to waste resources trying to see if they can prosecute and extract FBAR penalties to the ones who already filed.
Hopefully, things will change in the right direction after a new IRS commissioner is apointed. Miller has been acting commissioner for more than 6 months now. When we look at the history of acting commissioners, 6 months is about their longest tenure. Hopefully they’ll be some change soon.
http://en.wikipedia.org/wiki/Commissioner_of_Internal_Revenue
@calgary, and other IBS authors and administrators:
Seems to be important news here, that minnows need to know. Must read the whole entry.
http://federaltaxcrimes.blogspot.ca/2012/04/opting-out-3-4412.html#comment-879851153
@anon5percent was generous enough to alert us and share information on Jack Townsend’s site:
“…………OVDI participants and many tax attorneys will want to know. The news is that the Streamlined Program policy is changing again. It is very much to the favor of OVDI participants. It seems that they are being given the chance to enter the Streamlined Program on the basis of the same years as new Streamlined Program participants…………..”
@Chris
What the US needs to do is give complete amnesty to USP’s abroad, but their paranoia of someone trying to get away with something stops them.
@badger
That’s definitely newsworthy, because the information I’ve seen is that they’re looking at all 8 years.
This stands out to me:
“OVDI participant did not file in 2009, that fulfills the conditions of the Streamlined Program. Previous filed years do not come into question for Streamlined Program eligibility if an OVDI participant wants to opt out into the Streamlined Program. That makes sense as these years are all closed anyway if one was a filer and did not have a major reporting discrepancy.”
No years are ‘closed’ for new filers, as there is no statute of limitations for those who’ve never filed US taxes before. How I see it, my husband and I are therefore SOL on the SOL.
Do you read it as I do? BTW, Allison Christians responded, I’ll forward your link to her. Thank you.
Other interesting tidbit from Jack Townsend’s site:
Another report underscores the questionable use of penalties to foster compliance – vs. penalty regimes as revenue raisers.
http://federaltaxcrimes.blogspot.ca/2013/04/jct-staff-report-on-selected-tax.html
Jack refers to this : “The Staff of the Joint Committee on Taxation has published “Present Law And Background Information Related To Selected Tax Procedure And Administration Issues” dated April 14, 2013″
https://www.jct.gov/publications.html?func=startdown&id=4515
You might have seen also the AICPA report with very similar themes:
http://www.aicpa.org/PRESS/PRESSRELEASES/2013/Pages/AICPA-Submits-Civil-Tax-Penalty-Reform-Proposals-to-Congress.aspx
……”The American Institute of CPAs (AICPA) on April 11, 2013 sent to Congress its legislative proposals for reforming the civil tax penalty provisions of the Internal Revenue Code so they are clearer and fairer and, consequently, do a better job of encouraging voluntary compliance with the nation’s tax laws.
In a letter to the chairmen and ranking minority members of the Senate Finance and House Ways and Means Committees, Jeffrey A. Porter, CPA, chair of the AICPA Tax Executive Committee, said, “There are many aspects of the civil tax penalty regime that concern our members. Our highest priorities are to ensure that the penalties are sufficiently calibrated to the level of noncompliance, address the inconsistent application of reasonable cause in civil penalty administration, and minimize the presence of strict liability penalties in the Code.”
Porter noted that the AICPA has a long history of advocating for reform of the civil tax penalty provisions in the Internal Revenue Code, which resulted in the legislative proposals the AICPA sent to lawmakers and the 2013 AICPA Report on Civil Tax Penalties: The Need for Reform, revised from 2009, by the AICPA Penalty Reform Task Force.”……
@bubblebustin, I’m not sure how to read that, but it seemed that the good news was that changes are being made, and I saw this portion;
….”It seems that they are being given the chance to enter the Streamlined Program on the basis of the same years as new Streamlined Program participants.”….
Now, perhaps that means only that they are not excluded for having filed previously, or for having filed amended returns. But, it is possible that the greater number of years under consideration, as demanded originally for those in the OVD could also be under review? The number of years to be reported and examined changed from the 2009 OVDP, then to the 8 for OVDI, then there was the December 2011 factsheet , and then Streamlined (3 years returns). If they are offering potential refunds of previously resolved OVDP and OVDI cases in light of the Streamlined process, and loosening the rigid Streamlined criteria, perhaps there is hope. From anon5percent’s comment, it appeared that senior legal counsel for the TAS, and TAS staff knew about the changes whereas individual IRS agents and examiners did not.
Worth asking about in your case?
Here’s hoping!
Thanks for highlighting this, badger. I have posted for you:
More on opting out of OVDI and into the Streamlined Program.