Saturday, September 1, 2012

IRS Data-Mining Program re Offshore Accounts; with a Diversion to the Real Golden Rule (9/1/12)

I picked up this promotional / informational blurb, here, about an article written by Jay Nanvati, a BakerHostetler lawyer.  The article is Jay Nanavati, Why Holders of Foreign Bank Accounts Need to Worry About IRS’s Voluntary Disclosure Data-Mining Program (Bloomberg BNA Daily Tax Report 8/28/12), here.  The promotional blurb, which I cut and paste, is:
Nanavati Discusses Impact of IRS’s Voluntary Disclosure Data-Mining Program in Bloomberg BNA 
Counsel Jay Nanavati published “Why Holders of Foreign Bank Accounts Need to Worry About IRS's Voluntary Disclosure Data-Mining Program” in Bloomberg BNA on August 28.
Use of data-mining technology, like Facebook or LinkedIn's ability to suggest people to whom you may be connected, is widespread. In fact, Nanavati writes, the Internal Revenue Service (IRS) has adopted it to find taxpayers with undisclosed offshore bank accounts.
U.S. taxpayers who are still considering whether to disclose their accounts need to understand that IRS's data-mining software, E-Trak Offshore Voluntary Disclosure system, increases their risk of being detected. Additionally, the phasing in over the coming year of the Foreign Account Tax Compliance Act (FATCA) will only increase the breadth and depth of the data available to IRS and E-Trak. Taxpayers should act accordingly and seek legal advice immediately, he warns, as taxpayers whose accounts IRS has discovered are ineligible to participate in the Offshore Voluntary Disclosure Program (OVDP). 
However, taxpayers with undisclosed accounts have options, says Nanavati. First, they can enter the OVDP and pay a penalty. Second, they can enter the OVDP and choose to “opt out.” Finally, the taxpayer can make a so-called quiet disclosure. 
Those not aware of their U.S. tax obligations can face civil and criminal penalties for nondisclosure, notes Nanavati. The only way to deal effectively with the internationalization of tax enforcement is to get out ahead of IRS and talk about your options with an attorney, he concludes.
I encourage you to read the article (as does, I infer, BakerHostetler which posted the promotional / informational blurb with the link to the article).

Of course, from my perspective, the question is whether the IRS is fishing -- data-mining -- for minnows or whales.  As I have noted and quoted before, my late friend Janet Spagrens (see Tax Justice Network: World's Elites Hide Trillions Offshore (7/23/12), here.

I am reminded in this regard of the late Janet Spragens with whom I had the honor of serving with at DOJ Tax Appellate Section in the 1970s.  She was a tireless advocate for the taxpayer underdog, often chastising the IRS for going after the smaller taxpayer when there were bigger targets.  (As I recall, she characterized the IRS attitude as being "we have smaller fish to fry," but alas I could not confirm that as an actual quote by a quick Google search.)

I do think the IRS has learned its lesson -- well, has to sometimes re-learn -- and will not allocate material resources chasing down minnows in the offshore account area.  Now, what I think the IRS does is create the specter that it might chase down minnows which horrific consequences to the minnows chased down.  This is just a threat to encourage a lot of minnows to open the kimono voluntarily in the various programs it offers, so that it collects revenue in the aggregate that may be significant with little relative IRS resources.  But, when it does allocate major resources, I can't imagine that the IRS is really going to devote them to minnows and leave the fat cat whales alone.

Which brings me to another topic where it does appear that the IRS did leave the fat cats alone -- but the context is different -- the IRS apparently did not allocate any resources to clear abuse, whether by minnows or whales (and not just ordinary whales, but very large and very politically influential whales).  Nocholas Confessore, Julie Creswell and David Kocieniewski, Inquiry on Tax Strategy Adds to Scrutiny of Finance Firms (New York Times 9/1/12), here.  This is just variation of the real "Golden Rule" -- he who has the gold -- gold being both money and the political power it buys -- makes the rules. (On this real world version of the Golden Rule, see here.)

Even plain meaning trumps Justice Scalia could nail that problem in short order.  Section 61(a)(1), here, plainly says  "Compensation for services, including fees, commissions, fringe benefits, and similar items" is income and nothing makes it "property" subject to capital gains treatment.  Indeed, the property concept in compensation is that property received for services is compensation taxable as ordinary income.  That should be pretty much the end of the issue.  At least as I imagine Justice Scalia's claim as to statutory interpretation would work.  (Of course, I have to allow the possibility that the Golden Rule works in the Supreme Court as well as in Congress and the Executive Branch.)

Since I mention Judge Posner and Justice Scalia, I can't help but mention their recent tiff.  The opening round was fired by Justice Scalia and his writing pal, Bryan Garner.  The book they co-authored is Reading Law: The Interpretation of Legal Texts (Westlaw 2012).  The Westlaw URL for the book is here and the Amazon URL is here.  On my companion Federal Tax Procedure Blog, I posted a blog of a review:  Review of Scalia Book on Statutory Interpretation (7/17/12), here.

Judge Posner fired the next round in Richard Posner, The Incoherence of Antonin Scalia (The New Republic 8/24/12), here.  For those interested, I recommend reviewing Judge Posner's article and don't think I am up to the task of even summarizing it.  That is not a negative comment.  Judge Posner has something to say; I find that generally he is worth listening to.

The has now rebuttal appeared in the form of someone perhaps serving as a surrogate for Judge Posner.  Ed Whelan, Richard A. Posner’s Badly Confused Attack on Scalia/Garner (National Review Online 8/31/02), here.  I also will not attempt a summary of it.  It is worth reading.

Although there are sharp edges in the back and forth, I imagine that Judge Posner and Justice Scalia can not only survive he punches but welcome them in the intellectual fray thus joined.


  1. New Press Release on the "Carried Interest" issue at Bain Capital

  2. I have seen ads, sometimes masquerading as articles, by several lawyers trying to scare people into joining OVDI -- and being represented by that lawyer. Jack has been one of the few who mention options such as quiet disclosure or forward compliance (when appropriate of course) and the possibility of a do it yourself approach with minimal lawyer fees.

    Data mining is a scare tactic but in practical terms just means that they look at the names of banks and see which ones have the most OVDI participants. I am in OVDI but like most immigrants do not deal with the type of institutions that have been in the news and the IRS would have never found out about most or all of my accounts.

    Yet I joined to do the right thing. Will the IRS return my good faith effort by treating me fairly? We'll see, but I can't be too optimistic.

  3. tulisan yang anda buat sangat menarik, saya juga punya tulisan tentang topik yang kamu bahas, kamu bisa kunjungi di


Please make sure that your comment is relevant to the blog entry. For those regular commenters on the blog who otherwise do not want to identify by name, readers would find it helpful if you would choose a unique anonymous indentifier other than just Anonymous. This will help readers identify other comments from a trusted source, so to speak.