Thursday, November 8, 2012

Commissioner's Swan Song - Excerpts on Offshore Bank Initiatives (11/8/12)

Doug Shulman, the outgoing Commissioner of Internal Revenue and principal public promoter of the IRS's and DOJ's offshore account initiatives, issued these prepared remarks before the AICPA in Washington, D.C., here.  He recounts his major initiatives, and includes the offshore accounts initiative at the top of the list.  I excerpt only the portion related to offshore accounts.
Today, I want to share with you some of the results of almost five years of relentless focus on a handful of strategic priorities we set for the IRS. The priorities are: 
•  Creating breakthrough strategies to combat international tax evasion; 
* * * * 
So, let me begin with our efforts on the international front.  Both corporations and individuals operate in the global economy, as corporations seek out new markets and individuals have global exposure through their investments, including retirement accounts. 
Yet, this fundamental shift to a more global economy has created a real set of compliance challenges for the IRS. On the individual front, we have made putting a big dent in offshore tax evasion a major priority. 
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 and foot the bill.
Over the past five 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. When we first set up our new program in 2009, we thought that figure would rise to maybe 1,000. 
So we are very pleased that we’ve had approximately 38,000 voluntary disclosures from individuals who came in under the special programs.  
To date, these individuals have paid back taxes and stiff penalties amounting to more than $5.5 billion, and the number continues to grow. We are mining the information we have received 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, or even primary, consideration here. It’s 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.


  1. "It’s 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." I maintain that the pain that the Obama adminstration has inflicted on expats has been intentional. See it is spoken of as a positive by Obama's chief tax henchman: Who are the US taxpayers who were not in the system? Why US expats, of course. Who else could he mean?

    Peter W. Dunn, Isaac Brock Society

  2. Mr. Shulman fails to address another important consequence of their efforts to enforce compliance - the large (and growing) number of those who are choosing to renounce/relinquish their citizenship.

  3. I fear he either doesn't know what harm his broad bushed initiatives have caused, or doesn't care. Either way, bottom line, for him, he will soon have a well paying job, consulting and advising those that were the victims of his single minded focus. In the meantime the OVDI processing factory grinds on, spitting out minnows as fertilizer and FATCANTICs continue their single minded focus to create a world wide GATCA. So it goes.

    Treasury is out with a PR release today,

    U.S. Engaging with More than 50 Jurisdictions to Curtail Offshore Tax Evasion

    I note this quote...

    “Global cooperation is critical to implementing FATCA in a way that is targeted and efficient,” said Treasury Assistant Secretary for Tax Policy Mark Mazur. “By working cooperatively with foreign governments and financial institutions, we are intensifying our ability to combat tax evasion while minimizing burdens on financial institutions.”

    If they really mean "targeted and efficient", then they should focus on Homeland resident offshore Tax evading offenders only, rather than such a broad net designed to capture every US Person residing every where on the Globe. GATCA will NEVER be "targeted and efficient" until they do.

    With the IGAs, the cost of FATCA is being expatriated back to the domestic homeland shores, and DATCA will cause a lot of expense and pain here. Congress never intended that, so will be interesting to see how the new Congress responds. As we know there has been some resistance already, and the most recent being Congressman Reichert, from Washington's 8th District. Being on the Ways and Means Committee, means there must be heightened concern about what they passed into law.

    The FATCA subject never came up in the election. I wonder how much longer it will remain remain the radar for the American media consciousness. Maybe until GATCA is cemented in place, and we are all stuck with the many negative intended consequences.

  4. I can understand that there are times where the application of the iron fist may be relevant. The law is the law, it must be enforced and tax cheats must be brought to justice.

    My main concern with this is the extent of one's understanding of global affairs and the ability to act justly in such an environment. America's international tax system is heavily complicated, prone to error and bordering on the edge acceptability. Using the iron fist to force compliance with a complicated system where high fines are charged for the smallest mistakes, might bring people into the system for the short-term, but for how long? The word "renounce" has become a hit in Google Trends.

    An IRS Commissioner needs to spend time working overseas and filing taxes from abroad, so that they can learn to understand the system and what it actually means. This would help them to realize that an international address is not one which is located in the US, that e-filing also needs to work for those who owe no tax or for senior citizens who live abroad, that high tax processing fees for a complicated system is a non-starter, that Americans who live abroad need to save for retirement and that it is not criminal to do so, that exchange rate fluctuations do not always equate to profit, and that it is extremely difficult, if not impossible, for the IRS to understand each tax situation for each individual in each nation around the globe.

    The US government is obviously excited that it was able to collect 5.5 billion, much of which from stiff penalties, and yet the Canadian Minister of Finance acknowledges that the majority affected by this in Canada are "honest, hardworking and law-abiding people - including many senior citizens - who have dutifully paid their Canadian taxes. Their only transgression has been failing to file Internal Revenue Service (IRS) paperwork that they were unaware they were required to file."

    I used to be in the tax system as a US citizen, but now I'm in the tax system as a non-resident alien, since I need to have a local checking account and a mortgage for my condo. If the IRS understood taxes in an international setting, then it would have ensured that the little innocent fish were not harmed or endangered with its iron fist against the big real tax cheats.

    Since one who renounces their US citizenship to protect themselves from the flaws of US policy may never again be a US citizen according to US law, maybe the US government might learn from this that its number one priority is to protect Americans from being wrongly harmed by US policy, such as the implementation of the iron fist in an internationally setting which is not well understood.

  5. I found something yesterday which caught my attention. OVDI in Google Trends is only shown to be of interest within the United States.

    Does this mean that OVDI is mostly a concern for stateside Americans? Maybe Americans abroad should have been excluded from OVDI, since it is likely something which should only concern those residing within the United States, given its tax-cheat focus.

  6. Mr. Shulman's contention that everyone with a foreign account is a wealthy intentional tax cheat is simply not correct. Besides Americans residing abroad there are many immigrants with foreign accounts. It is quite common in many foreign cultures to have strong trust and honor between close family, and for someone to lend large sums of money to a family member with nothing in writing. If we had intentionally tried to hide the money, we could have had a foreign parent or sibling open an account in their name, and the IRS would have NEVER known about the account or been able to prove who it belonged to. But no, once we found out about reporting requirements we are doing the right thing. We are very different from Americans who shipped money abroad and had no intention in declaring it until their account information was about to be released. Yet we are being hit with the same billy club. The reason the IRS expected 1,000 disclosures and got 38,000 is because there are 37,000 who were NOT willful and are trying to do the right thing. By hitting these people hard, the IRS is scaring away possibly millions of others and turning them into willful evaders. Don't praise yourself for 38,000 disclosures. Blame yourself for the much larger number you scared away from disclosing.


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