IRS Commissioner Douglas Shulman, on Thursday (April 5), in a question and answer session at the National Press Club in Washington, indicated he would step down when his term expires in November. As we have all heard before, he repeates the numbers of how many have come forward (33,000) and how much they have collected ($4.4 billion). Yawn, yawn. And particularly offensive is the following:
We view offshore tax evasion as an issue of fundamental fairness. Wealthy people who unlawfully hide their money offshore aren’t paying the taxes they owe, while schoolteachers, firefighters and other ordinary citizens who play by the rules are forced to pick up the slack.
His entire speech is at the IRS newsroom.
One of the first sites I visit everyday is Jack Townsend’s Federal Tax Crimes Blog. And not surprisingly, he has written about Mr. Shulman. (emphases mine):
I wonder if the Commissioner really understands how misfocused the program really is. Does he really understand the difference between whales and minnows, both of which he sweeps into the same net? Punishment should not be the same for both. Yet, the IRS offers a program of one size fits all, where the penalties for the whales (most of whom are really bad guys in terms of tax noncompliance) and the minnows (most of who are not). I am sure that the Commissioner and the IRS see the opt out as the safety valve as the way to deal with minnows and nuance, so that the inside penalties really apply to only on the bad guys. But the opt out because of all its uncertainties and interminable delays poorly serve a community of taxpayers who should receive at worst a light tap on the wrist and who are willing to be compliant into the future now that they are fully educated about the expectations of the IRS.
I strongly urge the IRS to move swiftly to publish guidance for how taxpayers will be treated on the opt out audit. That guidance should not cover the whales — who are the ones likely to deserve the onerous penalties and should stay within the program penalty structure without opting out. The guidance should make the punishment fit the conduct — I don’t say crime because in these cases there is no crime. That would mean in many, perhaps most, cases a future compliance (some call it a warning) letter or a relatively light slap on the wrist and at least an implicit welcome into the community of taxpayers with full knowledge of what is expected in this area. This would help alleviate a lot of the angst that these good people have about entering the program and getting right with the IRS. That way, these taxpayers can feel more comfortably about opting out in the first place and, because they will know something about the administration of the opt out audit, will not feel that for long periods they have the Sword of Damocles hanging over them.
One of the commenters to this post relays yet another horror story about what he/she is experiencing in OVDI.
Anon5% Apr 6, 2012 12:16 PM
The IRS OVD programs, for those of us in the know, appear to be the equivalent of letting the Keystone Cops loose in the Treasury Department.
What irks my ire most about Commissioner Shulman’s remarks is that the hallmark of a true leader is seriously missing. It would not take much to acknowledge the missteps with respect to minnows in the OVD programs by implementing a clear policy for rectifying the situation. Nothing needs to be said. The policy would speak for itself. This kind of action is seriously lacking. An action of this sort would allow the Commissioner to save face as well as help many victims of the poor policy planning. Let me illustrate by example.
As a minnow, I have recently had to abandon my legal counsel because I wish to opt out and I can no longer afford them. They have told me their costs will be greater than my penalty. In our last conversation, my former lawyer told me that people like me, minnows, were suffering greatly since a “one size fits all” policy was implemented. He told me that when FAQ 35 discretion had been allowed, he had a client who had USD 300 million in assets overseas and who, in OVDP, faced a fine of USD 60 million. The client spent over USD 100,000 on legal fees and my former lawyers were able to obtain discretion from an IRS agent so that the client paid a penalty of USD 50,000.
If I am not mistaken, Just Me paid a penalty of $25k. This is so unfair it makes my blood boil. I kind of doubt our dear friend has assets of $300 million. Yet the wealthy man paid only double . How on earth could anyone think this is justifiable, reasonable or FAIR?
Another commenter, who I believe is a lawyer offered this:
How about getting an electronic petition going, one of those thingys that you can add your name, address, email, etc, to and edit a standard letter and it gets sent to Commr. Shulman outlining the reasons why this OVD program is silly, unfair and actually serves to undermine tax compliance by highlighting who gets prosecuted and who does not? Occasionally, I sign up for letters to my Senators and Congressmen and I always get a thank you back so I know they got the letter. I will sign it for sure as will many lawyers, accountants and people who are affected by it. I would not have known much about this program were it not for this blog, but now I know and it infuriates me. This is just a bad idea on many levels. I cant imagine how infuriated those involved in must feel.
Anon’s comments about being a leader point out all that is not noble about people in positions of power in the US government. (I almost said “our”). A real leader would at least defend himself against the “allegations” made by Ms. Olson in the TAD. He escapes by claiming he is only required to respond to the annual report to Congress. Rather cowardly, don’t you think?
November is 7 months away. Though I doubt Mr. Shulman will get off his horse about his accomplishments regarding offshore tax evasion, it would be interesting to see if we could find a way to insist on a breakdown of who those 33,000 were, as well as try to force some kind of response at least to the FAQ 35 issue. I would expect, if the American people read about the wealthy man with $300 million paying $50,000 compared to Just Me paying $25k, maybe a few would come around. Somebody should make the Congress and Shulman exposed for what they done.
I wonder if it would be worth trying to set up another petition. The FATCA petition moves slowly and I don’t know if there would be a way to get people interested in another one.
Ideas?
http://federaltaxcrimes.blogspot.ca/2012/04/shulman-recounts-his-tenure-and.html
@expat_business_man…
Right you are! But then you are thinking logically, and we have a Commissioner that brags about a pejorative… His Myopic focus.
@Expat_business_man,
Thanks for the clear summation of the US making a quick buck with us. Truly, many of us feel that we can never again trust what happens with the IRS and it is the main reason we have to renounce or relinquish that extraneous (and toxic, to us) citizenship.
@all
I refer to part of Jack Townsend’s comment about Mr. Shulman:
“I wonder if the Commissioner really understands how misfocused the program really is. Does he really understand the difference between whales and minnows, both of which he sweeps into the same net?”
Let’s pause for a moment and ask if this could be possible? We know that he was once in Toronto to address the ABA. But, other than that, has this man ever been outside the United States? (In any case, a visit to Toronto is not really a trip outside the United States). Does anybody know anything at all about him? I am trying to imagine what kind of background could he have that would allow him to think (or rather not) the way he does?
Any help would be appreciated.
I used to work for the world’s biggest electronics distributor and we had a General Manager who was corrupt but we couldn’t do anything about it because he always made his monthly sales number (using extremely unethical methods).
In the end the manager was found guilty of a massive theft from the company but they chose not to prosecute because it would harm the company’s image (ironic). He was escorted out of the building with no warning right before our weekly sales meeting.
If Shulman is corrupt and that wouldn’t surprise me considering his actions, wouldn’t the government want to hide the fact to protect themselves?
@renounceuscitizenship
I can tell you a little about the place he comes from which may or may not actually be an accurate assessment of his “makeup.”
He is from Oakwood, an upper-class section of Dayton Ohio.
The general perception of people from Dayton is is that Oakwood folks are somewhat more “privileged” than those of us from the rest of the city. Dayton was highly industrial in the ’70’s, when he would have grown up (b 1967). There is a large Air Force Base there, Wright Patterson, which people are proud of as well as other companies who did many contracts for the government (such as Mound/Monsanto, which received many contracts from DOD).
I would think it accurate to say that patriotism is strong and valued there so that would set a base of trust in the government.
Shulman holds a Bachelor of Arts degree from Williams College, a Master of Public Administration degree from Harvard University’s John F. Kennedy School of Government, and a Juris Doctor degree magna cum laude from Georgetown University Law Center. None of them slob schools. For someone with his background, it would be hard to imagine that he had never travelled to Europe, etc.
Of interest, from 1998 to 2000, Shulman was Vice President of Darby Investments, Ltd., a holding company, where he managed financial and legal aspects of the company’s transactions. Darby has more than 100 investments across the investment platform in Europe, Latin America and Asia. He would certainly have come across resident USCs investing abroad. Also of interest is from 1996 to 1997, he was Senior Policy Advisor and then Chief of Staff of the bipartisan National Commission on Restructuring the IRS.
Maybe a small start to understanding what has made him what he
is. While I don’t like a lot of what I have learned about policies he has established, I don’t think I would go so far as to say he was “corrupt.” I would actually expect the opposite, that he probably has a strong sense of what “right” is.
http://www.allgov.com/Official/Shulman__Douglas
Shulman is just another bureaucrat. His interest is in his own career, regardless of who gets squashed in the process.
The core of the problem really lies with Congress. People like Grassely, the Levin brothers, Rangel and others view today’s expats the same way British Parliament viewed the American colonists — “stop whining and be grateful to be a serf in the empire.”
The fact that expats don’t use any US government services and pay taxes where they live is irrelevant to such people. Expats have no representation in Congress and are therefore easy targets for predatory legislation.
1776 is already underway, one RENUNCIATION at a time at a time.
nobledreamer – Thanks for digging out the bio on Shulman. But I cannot give the man a pass. No exoneration for any careerist who inflicts that kind of willful damage. Fancy strings of degrees count for nothing in the realm of axiology. Lots of well-educated have served lots of nasty states. You are what you do. How do I deplore thee? Let me count the circles of hell.
@usxcanada- if you are refusing to give Schulman a pass because you want to deny him access to the, “only following orders”, then I would have to agree with you. This defense didn’t work for the Nazis or for those involved in the My Lai Massacre.
But your legitimate objection is pointing to a much greater problem, which is how do you demonstrate to a government that is in power that its laws are criminal? This task is the hardest to do and can only be accomplished through a court trial or by moral public suasion. Unfortunately neither of these routes is readily available to expats.
It took years of public demonstrations before the U.S.government finally got of Vietnam. It also took years of public demonstrations before the Civil Rights movement was able to change things. As we have already said though, there is no one in public office who wants to advance our cause and the American public is under the dellusion that we are traitors to the cause. Even in the face of massive renunciations the U.S. has decided to double down on its anti expat stance rather than to change course.
Schulman is doing the job that he has been given. If he were to refuse to do it he would just have been replaced with someone else who would.
The only real power expats have as individuals is to renounce / relinquish US citizenship.
After a while, someone in Washington just might catch on. But I wouldn’t hold my breath on it.
It took 58,000 dead American soldiers, over a million dead Vietnamese, plus at least 30 years before McNamara (another highly educated bureaucrat) would admit the Vietnam war was a mistake.
My entry above should have read:
“stop whining and be grateful to be a serf in the empire.”
@recalcitrant
Great comment, but I don’t agree that in the context of OVDI that Shulman is “just doing the job that he has been given”. The OVDI program is not an Act of Congress it is a program that has been crafted by the IRS. OVDI could have been crafted in a number of different ways. Mr. Shulman had designed and administered OVDI in a way that treats Whales and Minnows in the same way. Furthermore, this is now well known to the IRS. Hence, he is NOT doing the job that he has been given. He has started a war that is now predominately against U.S. citizens living abroad and immigrants. The war is causing deliberate damage to these two groups.
See:
http://renounceuscitizenship.wordpress.com/2012/03/26/the-irs-and-ovdi-unintentional-manslaughter-or-intentional-murder/
The war against expats and immigrants is just getting warmed up. Wait until FATCA kicks in.
Interesting video. Suggests a great deal about how Mr. Shulman views the IRS.
@PaulRevere
And that is why the pace of renunciations will continue to pick up.
Yes, because Shulman never ever alludes to taxpayers who live outside the US unless in the same breath with the Cayman Islands, tax evasion and tax havens. This is a deliberate and conscious strategy. He knows that the OECD definition of ‘tax haven’ that the US subscribes to does not apply to most countries in the world, and certainly not to Canada. It is dishonest and disingenuous.
By denying that we have any legitimate concerns, needs for service, and honest reasons to have ordinary bank accounts and financial lives if we aren’t living inside the US – he dodges all concerns about his conduct. We only exist in the context of ‘enforcement’ efforts.
We citizens outside the US are only ‘taxpayers’ for enforcement and penalty purposes, but not ‘citizens’ or ‘taxpayers’ who are considered worthy of service, or any other constructive and reasonable treatment by the IRS. We don’t rate any ‘services’ in the countries with the largest populations of US citizens ‘abroad’ (Canada and Mexico). We don’t get any ‘education’ efforts, no IRS tax sessions at our embassies, no volunteer preparers to help those with low incomes, or low literacy/numeracy skills outside the US, no toll-free phone numbers, no volunteer committees to gather input and identify gaps in services. You can’t tell me that it would be that costly to send a couple of representatives to Toronto or one of the other major centres like Vancouver. Wouldn’t the ‘education’ and ‘compliance’ functions be better served that way?
The fact that he never ever mentions Canada specifically, or Mexico, or even any other expat community other than Switzerland and the ‘offshore’ havens is very very telling.
@badger- I hope that you aren’t trying to make an argument for better service because that is not what expats want. Fundamentally it is just plain wrong and illegal for the U.S. to impose its tax laws on an extraterritorial basis. What is called for is a “territorial” tax system. U.S. tax laws serve no purpose for people who are not resident in the U.S. because it is the tax laws of our place of residence that determine the economic life of an expat.
As for whether or not it would be prohibitively expensive to estbalish IRS tax services in other countries, the truth is that it would. Especially when you consider that there really isn’t much tax to be received under the present tax treaty arrangements that the U.S. has with many countries. I also believe that the IRS does presently send agents out to different embassies during the tax season but of course the problem for the taxpayer is being able to be there when the IRS rep is there.
What the expat community wants is “residence” based taxation. No more and no less. End of story.
Excerpt from IRS Newsroom cited in this post – April 2012:
“We view offshore tax evasion as an issue of fundamental fairness. Wealthy people who unlawfully hide their money offshore aren’t paying the taxes they owe, while schoolteachers, firefighters and other ordinary citizens who play by the rules are forced to pick up the slack.
Over the past four years, we have significantly increased our resources and focus on offshore tax evasion, and the results have been substantial. We upped the ante in a meaningful way with our work on Swiss financial institutions – where for the first time in history, a bank secrecy jurisdiction turned over thousands of names and account numbers.
As we increased our enforcement efforts and gained significant momentum, we gave taxpayers a chance to come in voluntarily and avoid going to jail. In a typical year, we used to get 100 or so taxpayers who used our voluntary disclosure program. For this program, we thought that figure would rise to maybe 1,000.
So, we are very pleased that through the end of 2011, we’ve had approximately 33,000 voluntary disclosures from individuals who came in under several special programs we started in 2009. To date, these individuals have paid back taxes and stiff penalties amounting to more than $4.4 billion, and the number continues to grow. We are now mining the information we have received to date and have launched our next wave of investigations on banks, bankers, intermediaries and taxpayers.
Collecting additional revenue for past misdeeds – as important as that may be – is not the only consideration here. It is perhaps more important that we’re bringing U.S. taxpayers back into the system…back into compliance… so they properly report and pay their taxes for years to come. We have fundamentally changed the risk calculus of taxpayers who are thinking about hiding their money overseas, and we are well on our way to deterring the next generation of taxpayers from using hidden bank accounts to cheat on their taxes.”
Notice that the focus is on penalties and enforcement. “Bringing U.S. taxpayers back into compliance” is given an honorable mention.
This is not the first time he has said this. Here is a speech from May 2010 at John Hopkins:
“Let me begin with our efforts to combat offshore tax evasion.
During my tenure as Commissioner, I’ve made putting a significant dent in offshore tax evasion a major priority. In the U.S. and other nations, we view offshore tax evasion as an issue of fundamental fairness. Wealthy people who unlawfully hide their money offshore aren’t paying the taxes they owe, while schoolteachers, firefighters and other ordinary citizens who play by the rules are forced to pick up the slack.
Our approach follows a natural course…cleaning up the abuses of the past and then mining and leveraging the data we receive to mount a greater attack on the abuse. A good example is our work on the Swiss bank – UBS – where for the first time in history, a bank secrecy jurisdiction turned over thousands of names and account numbers.
As we increased our enforcement efforts and gained significant momentum, we gave taxpayers their best chance to come in voluntarily and avoid going to jail. Now, in a typical year, we get 100 or so taxpayers who use our voluntary disclosure program. For this program, we thought that figure would rise to maybe 1,000.
So, we were very pleased that we had approximately 15,000 voluntary disclosures from individuals who came in under a special program we created, which entailed payment of back taxes and stiff penalties. And since it closed, we’ve received an additional 4,000 voluntary disclosures from individuals with secret bank accounts from around the world. We’ve even launched a second disclosure program with much tougher financial penalties – but no jail time – if taxpayers come clean with us. We are now mining the information we have received to date and have launched our next wave of investigations on banks, bankers, intermediaries and taxpayers.
Collecting additional revenue for past misdeeds – as important as that may be – is not the main consideration here. It’s equally important that we’re bringing U.S. taxpayers back into the system…back into compliance… so they properly report and pay their taxes for years to come.”
Again the focus in on penalties and not bringing taxpayers back into the system.
Many people are of the view that Mr. Shulman’s OVDI programs have made people more reluctant to come back into the system. It’s too bad. Greater rates of compliance would be good for everybody. Greater rates of compliance would be an investment in the future of the U.S. economy. But, it looks as though Mr. Shulman is not primarily interested in investment.
It’s all about forms and penalties!
An interesting (sad) read
http://www.englishforum.ch/finance-banking-taxation/139023-american-marrying-swiss-tax-confusion.html
“Re: American marrying Swiss tax confusion!
In addition to issues surrounding tax liability, there are also reporting requirements to consider.
Both of you should read up on the reporting requirements – then decide together how you will handle financial matters. Or better yet, see a tax professional – together.
(I know of two FBAR divorces – a very sad state of affairs.)
And another thing to discuss: Uncle Sam’s sledgehammer is going to hit your future children, even if they never set foot on US soil – so you need to consider that too when making family financial arrangements.
“
@recalcitrantexpat
April 8, 2012 at 9:12 pm
re:
” @badger- I hope that you aren’t trying to make an argument for better service because that is not what expats want…..”
I was actually just trying to underscore the continued illogic and inconsistency that the US and IRS show by the way their words and actions are consistently at odds. In other words the ‘bad faith’ that Shulman consistently shows along with what can only be a deliberate and persistent (or ‘evasive’?) strategy whenever he speaks about the nature of the IRS, ‘enforcement’ and his priorities. He stays on his message, and never ever touches on the issues of taxpayers outside the US except in his deliberate and disingenuous cloak and mantle of ‘evasion’-speak. He pretends in that video that he and the IRS are really just a friendly helpful agency who want to assist ‘taxpayers’. He does not ask for money to help expats – only for enforcement. He does not want to assist; he wants to generate penalties in lieu of the taxes that don’t actually exist. His refusal to answer the TAS, and refusal to release an analysis of the penalties vs. taxes collected in the OVD programs are evidence of ‘willful’ ‘evasion’ and deliberate ‘non-disclosure’.
I think this is illustrated aptly by the excerpts from his other speeches – above – (thanks @renounceuscitizenship).
Better service would not address the insanity of the system as applied to those outside the US, those with dual citizenship, and those inside the US with legitimate assets in their home countries. Better service would not stop the IRS from overreach, or Congress from enacting punitive and stupid laws to impose on others without consent or meaningful representation. It would not address any of the injustices we are trying to flag, or the FBAR and FATCA madness and unethical penalties, and privacy infringements on the accounts of non-US individuals in other countries. This isn’t even about actual ‘tax’ – much as he likes to repeat that. It is about the system itself and how it is grinding up anyone it comes across.
As per the cost of sending out agents periodically to embassies and consulates in Canada. They cancelled those sessions due to budget cuts – that is noted on the embassy sites. I wouldn’t have expected that they would keep fulltime IRS staff there – although some of the sites in Europe seem to have permanent staff available to the public via parttime hours. My point was that I don’t see that it would cost much to routinely have sessions over period of days, every year, just across the border in two of the largest cities in Canada – with large expat populations – and they can do this now virtually via webinars, etc. I just noted that it was another egregious case where they actively choose not to provide what they say they believe in – in spite of what Shulman says in all his speeches. There is no will to do it, because that is not their actual aim or priority. They say they want ‘compliance’, but do nothing constructive towards that. Therefore it is heavily fined non-compliance that is actually their goal.
Mr. Douglas Shulman is 100% responsible for the administration of OVDI. He made a deliberate and conscious choice to treat minnows no differently than whales. He has been pretending that he don’t understand the difference between minnows and whales. You can’t teach difference to people who pretend to not understand. So he will get whatever punishment God gives him in hell, since he can’t pretend before the God. He can’t ignore God’s TAD or request for information, as he has been deliberately doing with Nina Olson or refusing to divulge information requested by ACA under FOIA. He may not be corrupt, but an overzealous bureaucrat going out of his way to satisfy his ego and self-importance, even if it causes irreparable damage to the US economy and life’s of expats living abroad for decades.
The US ambassador to Canada Mr. Jacobson said: We are not unreasonable. We are not unsympathetic. We are not irresponsible. This clearly shows, Mr. Schulman behavior is irresponsible and unreasonable.
We can’t blame Shulman for citizen based taxation, but he is certainly 100% responsible for the treatment of each and every minnow entered OVDI in good faith. He is certainly responsible for not yet publishing alternative disclosure path for minnow, which was promised many times. How complicated it is to say, file past 6 years taxes and pay interest, if any tax is due. No FBAR penalties on all the accounts in are in expat’s country of residency (if it is not a tax heaven), if minnow have been living abroad for all 6 years and hiding no money in financial accounts in tax heaven to evade US taxes.
Mr. Shulman using OVDI as a trap to punish defenseless minnows, since IRM clearly asks for a warning letter, if the violation is non-willful, while he is helpless in case of most of the whales, who can afford high priced lawyers. The minnows in OVDI are punished for their ignorance and naively trying to do right thing, as soon as they were aware of their obligations. Collecting penalties from minnows is easy, since they are exposed themselves by entering OVDI and can’t defend themselves living thousands of miles from a US-lawyer or even aware of US legal framework.
@desi,
an interesting and very sad twist – re the FBAR marriage jitters, and the FBAR divorces. I know of two with extremely strained relationships and stress for the whole family – as a direct result of OVDI and FBARs. The TAS should be told about the engagement example – it is insane to have a tax system and expatriate laws determining how we marry, causing divorces, the breakup of families, depression, etc. Will we now establish FBAR and FATCA pre-marital and divorce counselling sessions with tax attorneys and CPAs? And deciding how to prevent our children and grandchildren from inheriting the burden – like genetic counselling – but for US citizenship? I saw that the site goes on to discuss children too. So US tax planning has to start pre-birth.
@ All
I just want to make clear that I am by no means suggesting that Shulman be “let off the hook.” Renounce asked for some background on the man and since he’s from my neck of the woods, I can imagine what his simple “core” is like. Then OMG gave the example of a corrupt Manager who had committed massive theft and was let go quietly so as not to damage the company’s reputation. My comment about Shulman knowing what “right” was, was in context to the mention of theft. As far as damaging the reputation of the IRS, well, according to Shulman, IRS is doing way better on the American Customer Satisfaction Index; in 1998, an all time low rating of 32% and 2011, up to an all time high rating of 73%. Obviously, they didn’t ask any expats.
I recognize Badger’s point that Shulman never mentions expats abroad and tax havens and that this is a deliberate and conscious strategy. I wonder if anyone has ever asked him about the difference of effect of OVDI on expats abroad and resident USC’s. By constantly using that strategy, he reinforces the omission and probably nobody stateside would even think of it. After the speech at the National Press Club, I expected the Q&A session would involve people in the audience but all the questions were read by the woman who emceed the program. Probably he knew in advance what he would be asked.
I don’t have a lot of faith or hope that this situation will be rectified and agree, the only real power lies in renouncing. Anything else means you have to be violated, over and over again.
Sad part is OVDI caused expats and dual-citizens to plead guilty to a crime they didn’t commit. The IRS committed at the time of amending FBAR law in 2003 to educate tax payers and the law provided safety net of reasonable cause and non-willful violation, when there is no tax liability. The IRS treating all failures as willful criminal tax evasion is violation of the law and congressional intention.
If expat owe no taxes, why would he intentionally break FBAR law indented for terrorists and money launderers, which can ruin his life? This is putting lot of emotional stress on law abiding expats and causing crippling distraction from one’s jobs and businesses. Only good thing is I last 6 pounds due to the stress, which I couldn’t do in previous 3 years.
To borrow a much loved expression used by many US Homelanders, “Don’t let the door hit you on the way out, Shulman!”
Mr. Douglas Shulman nomination was confirmed by the full U.S. Senate on March 14, 2008 and he was sworn in on March 24, 2008. Why is he leaving early? May be he is being pushed out. Obama may have asked him to leave early to nominate next commissioner, just in case Obama losses elections. Obama may be not happy with his performance, or inability to comprehend even simple things like difference between minnows and whales, or difference between collecting taxes and penalties. I hope next commissioner is more intelligent to know the difference and have respect for laws (e.g. deal with FOIA and TAD as required by law).