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.
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The IRS is following through with the GAO recommendation in auditing quiet disclosures.
See latest entry on Jack Townsend’s blog:
Quiet Disclosures Increasingly on IRS’s Radar Screen (10/18/13)
http://federaltaxcrimes.blogspot.com/2013/10/quiet-disclosures-increasingly-on-irss.html#disqus_thread
This is persecution.
@Chris
One thing I’ve wondered is whether the IRS is distinguishing between QDs from homelanders vs those from first time offshore filers. Seems to me that there should be a bigger bang for the buck from the former (unless the IRS is hell bent on going thru the grandmas in OVDI thing some more).
Anyone have an idea?
How many more reports do we need before we fire them?
GAO: IRS Lacks Adequate Internal Controls http://bit.ly/1j5HEtl
@Just Me
The IRS no sooner plugs one hole, then more appear. They need an emergency moratorium on any laws that would exacerbate this dire situation – like FATCA.
The I Love Lucy Chocolate Factory scene again comes to mind. Lawmakers say “SPEED IT UP A LITTLE!”
Much to learn from the Obamacare cockup
“FISMA was enacted in 2002. Under FISMA, federal agencies are required: “to develop, document, and implement an agency-wide program to provide information security for the information and information systems that support the operations and assets of the agency, including those provided or managed by another agency, contractor, or other source.”
Doubt that the FinCen FBAR site or the FATCA FFI site meet these criteria. This could be pushed.
http://dailycaller.com/2013/12/11/obamacare-marketplace-violates-federal-security-law/#ixzz2nTA9XDuI
Much to learn from the Obamacare cockup.
“FISMA was enacted in 2002. Under FISMA, federal agencies are required: “to develop, document, and implement an agency-wide program to provide information security for the information and information systems that support the operations and assets of the agency, including those provided or managed by another agency, contractor, or other source.”
Doubt that the FinCen FBAR site or the FATCA FFI site meet these criteria. This could be pushed.
http://dailycaller.com/2013/12/11/obamacare-marketplace-violates-federal-security-law/#ixzz2nTA9XDuI
Interesting…. You may be right..twice! LOL. the question is good enough for a tweet!
https://twitter.com/FATCA_Fallout/status/411910660344139776
So @USTreasury where #IRS “Authority to Operate,” or ATO for the #FATCA Portal of Mordor? None for #Obamacare http://bit.ly/1b5vqXP
@bubblebustin… Thanks for the chocolate chuckles. Did you know that, I once worked on a Little Debbie production line in Tennessee straightening out cream cookies? I can relate to this! Brings back the memories of the things I did for money in my youth! And… then there was herring roe stripping in Alaska. Not as tasty!
Lol, Just Me.
That brings back my memories of the one shift I did in a fish processing plant here on the west coast. I don’t even remember what kind of fish it was, but it paid cash and I needed some! I also lasted one day as an apple picker in the Okanagan, but when my two friends and I spent an entire day filling one bin to split $5 three ways, I knew that my days as a migrant farm worker would be limited to that one experience. At least the farmer let us pitch our tent in his orchard overnight. My husband could tell you stories about his grape picking days in Chateauneuf-du-pape, and as a banana picker in Israel.
@JUST ME
Somebody else succeeded in firing the whole lot after the banksters screwed it up
http://guardianlv.com/2013/12/icelanders-overthrow-government-and-rewrite-constitution-after-banking-fraud-no-word-from-us-media/
@Mark Twain…
I wonder if Planet Money is going to report on that, as they have done quite a few podcasts on Iceland. One of their interns was from there, and so, up till now, have reported pretty extensively on it.
http://www.npr.org/search/index.php?searchinput=Iceland
I think the story is 4 years old, so they have had their chances. No one wants to be accused of informing others about the citizens ov\er/th-r=ow=ing their own goobermint.—they don’t want anybody learning anything.
MUST Read:
http://www.procopio.com/userfiles/file/assets/files1/the-2013-gao-report-of-the-irs-ovdp-2739.pdf
‘The 2013 GAO Report
of the IRS Offshore Voluntary Disclosure Program Reveals Key Facts:
There Were Not Billions of Income Taxes Collected
Few Offenders (378 Taxpayers) Represented One Half of All Collected Dollars – Reported At that Time
Taxpayers with Smallest Accounts (10th Percentile) – Apparently Owed (Median) of a Few Hundred Dollars per Year in Income Taxes’
By: Patrick W. Martin, and
G. Michelle Ferreira,
PARTICULARLY of NOTE: SEE the Appendix – a FOIA request submitted 3 times to the IRS – with most of the request items denied.
AND,
more statistical and critical analysis of the OVD programs and how the IRS ‘marketed’ them to minnows and those with no criminal liability through threats and misinformation.
Thank you for the report, Badger. I’m a few paragraphs in, and my blood’s already boiling reading about the IRS misrepresenting and stonewalling. This is what Patricia was subjected to. The reality is, the penalties will be reduced even further if people like her went for the refund they are entitled to.
http://articles.economictimes.indiatimes.com/2012-05-24/news/31827561_1_ovdp-offshore-accounts-irs
@Badger
Thanks for finding that. Think I might email the guy. ACA has it, and is circulating it widely in their group.
A truly shocking read. Who exactly are the criminals? It’s not clear from my reading of the report.
All the IRS needs is some baseball bats to complete the picture.
Why aren’t the Republicans going after THIS scandal. It seems like this needs to be investigated with some people held accountable for this extortion.
@noone
Thanks for the idea. I just sent it to Solomon Yue of Republicans Overseas, who’s spearheading the Abolish FATCA petition to congress.
This shows just how laughable the oft cited but completely unsupported figure of a $100 billion per annum tax gap really is. They’ve caught 378 whales, some relatively big fish and a huge number of minnows and the actual tax collected per year is estimated at $125 million. This is the “low hanging fruit” and it represents 1/800th of the supposed $100 billion a year “tax gap”.
FATCA supporters like to say that the $792 million per annum estimate of additional revenues could be very conservative. Anyone care to wager it’s massively overstated?
@Edelweiss
I won’t bet against you! 🙂
@Edelweiss
They’re salivating over the fact that 7m USP’s might owe tax, regardless of the fact that 80% of filers don’t owe them anything.
@Noone…
Because they have been just as asleep as the Dems until just very recently, and they are skittish of being attacked as being for TAX EVASION or in favor of Tax Dodging. They haven’t yet devised a clever saying for press releases and political battles a way to slip that Dem characterization on its head.
@Noone…
I meant to say… a way to “flip” that Dem mischaracterization on its head.
@Bubblebustin
Let’s assume for a moment that the 80% holds true for the current non-filers as well. Amongst the non-filers will be those that don’t meet the thresholds and those that aren’t filing for whatever reason.
Just for the fun of it, here’s how many US citizens abroad who are not currently filing need to be found by FATCA in order to reach the $792 million. If the average additional US tax paid by the 20% of filers who owe additional US tax amounts to:
$100 – 39.6 million with 7.9 million of them paying $100 each
$300 – 13.2 million with 2.6 million paying $300 each
$500 – 7.9 million with 1.6 million paying $500 each
$1000 – 4 million with 0.8 million paying $1,000 each
$5000 – 0.8 million with 0.16 million paying $5,000 each
If the current estimate of 6 million or so US citizens abroad is correct, then the 20% will need to have to pay an average of $750 each after FEIE, foreign tax credits, the personal allowance etc. That seems quite high to me although it is entirely dependent on where the non-filers live. If they are all living in Hong Kong, Singapore and Dubai then it might be achievable. If they’re living in OECD countries, then, it looks less achievable.