Tuesday, January 21, 2014

Tax Notes Article on IRS 2013 Victories in Offshore Evasion (1/21/14)

A number of readers have commented that, in their view, the IRS OVDI/P programs and the Swiss Bank program were unwise and would prove counterproductive for U.S. interests.  There are other views.  With permission of Tax Analysts, I offer readers a recent article, Andrew Velarde, Year in Review: U.S. Scores Victories Against Offshore Evasion and Avoidance, 142 Tax Notes 17 (Jan. 6, 2014), here.

The article speaks for itself, offering the view of the IRS that the programs will benefit U.S. interests.

Some cautionary notes in the article:
As the examination of accounts held with UBS reaches its conclusion, the IRS Small Business/Self-Employed Division's special enforcement program said it will soon begin an examination of U.S. taxpayers suspected of holding undeclared accounts in Indian banks. In November Nicholas Connors, a supervisory revenue agent with the program, said that Israel is also providing information to the IRS on bank accounts held there.\ 
* * * * 
Even though several practitioners expressed uncertainty in the workings of the program, especially for accidental noncompliant taxpayers facing the OVDP's steep penalties, they were presented with a problem in how to advise some clients to bring themselves into compliance. Quiet disclosures presented their own problem, with the IRS following the recommendation 2013 TNT 82-45: GAO Reports of the Government Accountability Office and using available data-mined information to increase its examination activity of taxpayers who did not disclose offshore accounts through the OVDP. Practitioners speculated that the data mining has provided the Justice Department with a treasure trove of information that it has used to bring new cases. They argued that the chances of the IRS detecting a taxpayer performing a quiet disclosure were much higher in 2013 than in previous years.


  1. sorry Jack but your post here has a sort of "groundhog day" feel to it . This article you present has nothing new to offer and we always acknowledged here over the years that bringing a small minority of USP tax cheats to justice is a win - win for everybody but not so for the majority of expats and grandpa and grandma`s who have been put on the government`s conveyor belt to oblivion.

  2. The program has caused many so-called US persons abroad to mistrust IRS and greatly resent the intrusion of the IRS into their lives. That is an incalculable loss to the US, as we, the persecuted so-called US citizens abroad, explain to our compatriots abroad (and here I mean fellow Canadians, French, British, etc.) how bad the USA has become--and they will believe us. It doesn't take much to feed their already existing anti-Americanism. The American hegemony is coming to an end, and it will happen more quickly than previous empires, that bestowed privilege and favours upon their expat citizens. By contrast, US citizenship is no longer an asset but a burden for which one seeks an escape. Mr. Townsend, your optimism is misplaced: the success of FATCA is failure, as it makes Americans abroad persona non grata. That can only destroy the presence of the US in other countries, except the military and diplomatic presence which will be greatly resented and hated.

  3. Is a six-fold increase in citizenship renunciation included in the criteria for 'benefit to US interests'? If yes, the offshore jihad is a 'victory'. Otherwise, a more objective view might be that it is a textbook case of winning a battle but losing the war.

  4. You are both right. Jack and Peter, you are both right.

    There is a reason that only the US and Eritea, a backwards dictatorship that cannot enforce its laws extraterritorially, have citizenship based taxation. It is essentially slavery to the state. The state owns you, regardless of where you live. It's fundamentally wrong. It is arguably a violation of the fundamental right to travel or a violation of fundamental human rights.

    But, Jack is correct, that the IRS and DOJ have been successful in enforcing these unjust laws. There is no denying that.

    Peter is correct, that expatriates and foreigners see the US as unjust. There is good reason for this. The laws assume the state owns its citizens by virtue of its tax laws. The power to tax is equivalent to the power to destroy. We have seen people with such limited contacts to the US being caught up in the web of the US tax laws to readily see that the tax net is being cast too broadly.

    I get very sad when I see the stories of people who might have been born in the US and moved away at an early age, or people who are US citizens by virtue of the acts of their parents who were proud to be Americans and who made their kids US citizens, suddenly finding their lives' savings being at risk. I feel sad for the foreign married couples caught up in the US tax web because one spouse retained US citizenship. (That must make for some stressful dinner conversations.) How anyone can read these stories and not be sad is beyond me.

    Most people are not sophisticated on US tax laws, particularly with regard to international financial reporting requirements. Perhaps awareness is higher today than it used to be, but that doesn't matter for the many people living in distress.

    There are two opposing views: One is that citizenship based taxation is okay because of the revenues it raises and for the revenues it seeks to avoid losing. The second view is that citizenship based taxation is wrong because people should be free to travel and only pay taxes where they live.

    So, here is what it comes down to: (1) Do the ends justify the means? In other words, is it okay to have laws that are universally viewed as unjust to raise revenues? Should the US 'bite the bullet' and accept that people can live where they choose and pay taxes where they live? (2) Who in the US is going to take the side of the minority of its citizens who live abroad, and say 'okay, go live abroad, and don't pay us a percentage of your income'? To change the law asks those remaining in the US to voluntarily assume a greater financial burden, when it is perhaps more palatable to tax a minority of foreigners without any political muscle. Or, put differently, the majority rules, regardless of fairness.

    With huge government deficits and the 'class warfare' mentality that has evolved politically, I don't see things changing anytime soon in the US.

  5. The article lacks any degree of differentiating between willful and non willful, accounts set up for tax evasion and accounts set up and used for legitimate reasons, good and bad actors. It paints everyone in a bad way when it is likely that many of those who joined OVDP are those most benevolent and most willing to correct past mistakes. The numbers show this. There are perhaps 5 million foreign accounts yet FBAR filings have increased from 300,000 to 700,000 in the past few years (which suggests 400,000 quiet disclosures.) Then there are apparently 4.3 million accountholders who have either done nothing, have or have dealt with FBAR legally (by withdrawing cash or paying down their mortgage so their foreign accounts never exceed $10K) or by illegal means (having a non-US relative hold the funds.) The programs may have brought 40,000 in compliance through OVDP and 400,000 through QD but they probably made sure that 4.3 million would not comply. At the same time it has treated all the 40,000 OVDP as willful when many are not and unfairly penalized them.

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