In the five season series Breaking Bad, Walter White earns an untold amount of cash through the production of blue crystal methamphetamine. In order to launder this money, his wife, Skylar, insists that they buy a car wash, through which she produces false invoices for cash sales. But in this scene Skylar shows Walt the cash that he’s brought to the car wash. She has moved it to a storage locker. She says she can’t launder this much money–not in ten years or even a lifetime.
What Skylar could not do through a car wash with less than a million dollars of gross revenue per year, the IRS has made possible through Offshore Voluntary Disclosure Program. First, one transfers the funds to an offshore account. Second, one enters the voluntary disclosure program and pays all back taxes, fines, interest and a in-lieu of FBAR fine of 27.5%. The money is now freshly laundered and can pay for Walter White’s childrens’ education, the legal costs for the defense of Skylar against criminal charges, and his extended family’s escalating health care expenses.
Now this is clearly the implication of the OVDP program of the IRS. The IRS Frequently Asked Questions says this:
What are some of the criminal charges I might face if I don’t come in under OVDP and the IRS examines me?
Possible criminal charges related to tax returns include tax evasion (26 U.S.C. § 7201), filing a false return (26 U.S.C. § 7206(1)) and failure to file an income tax return (26 U.S.C. § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.
A person convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.
However, the New Jersey Law Journal further explains the benefits of OVDP, with an important exception (emphasis mine):
What Advantages Does OVDP Offer?
OVDP must be distinguished from both other formalized, IRS-sanctioned methods of coming into compliance announced on June 18, 2014, i.e. the Streamlined Filing Compliance Procedure (SFCP) and informal ones used by some taxpayers such as “quiet” or “semi-quiet” disclosure.
Only the OVDP offers what amounts to amnesty from criminal prosecution to an entire group of noncompliant taxpayers. The door is closed only to those who are either already under IRS audit, those engaged in illegal activity to produce the unreported income and to the promoters of the use of offshore tax avoidance schemes and others whose names IRS already knew.
The OVDP incorporates elements of the prior civil settlement initiatives IRS had used effectively to resolve abusive tax shelter cases and caps the taxpayer’s civil tax exposure. This gives the taxpayer a predictable financial cost for “fessing up” and avoiding criminal prosecution.
Oh really. Colour me skeptical.
I know someone who about seven years ago purchased a building in the US but had to prove that his money wasn’t laundered. So he provided bank statements to demonstrate the money had been in his possession for three months.
In Breaking Bad, Skylar wanted to give $600,000 to her former boss and lover, Ted, who had been cooking the books with her help. The IRS had assessed him back taxes and penalties of $600,000 and she just wanted him to pay it to avoid further scrutiny, which she could not afford, since she was laundering money at her car wash. So her lawyer concocted a story about how Ted’s long lost aunt had died in Lichtenstein and he was the only living relative, and all he had to do was sign the dotted line and the money was his.
What is a crystal meth chemist supposed to do? I propose that Walter transfer his funds to an offshore account, leave it there for at least three months (the longer the better), and then enter the OVDP. He then concocts a story of how it came from a dead uncle and provides forged documents to prove it. The IRS then accepts the story, mesmerized by the millions of dollars of revenue in back taxes, fines and interest, in addition to the in-lieu of FBAR fine of 27.5%.
In the criminal world, profits are to be made and everyone involved gets a piece of the action. By skimming profits from ill-gotten gain the IRS has become indistinguishable from the scoundrels who hide dirty money in foreign accounts. Or are we to believe that the billions of dollars that the IRS has made from OVDP has all come from hard-working successful crystal-clean Americans (pun intended), whose only crime is that they wanted to hide their otherwise completely legal investments from the IRS? But we know nothing about these people or where they obtained their money. There has been no transparency. And where there is no transparency there is no accountability either.
We know that “benign actors” have felt the brunt of the OVDP. These are people with innocent accounts in their country of residence who unwittingly entered an IRS program designed to launder the money of criminals. The punishment of benign actors renders the IRS a criminal in and of itself. To punish the innocent is no less a crime than to let the guilty go free.
Finally, the OVDP is a program created out of whole cloth by the IRS. There is neither legislative authority nor judicial oversight. It is the rogue action of the executive branch of government. Where there are no checks, there are no balances either.