Jumping off the amnesty bus if you want to
This is a recurring question. If you start down the amnesty path but you don’t like the outcome, can you be forced to accept the 20% of high balance as your penalty?
Survey says . . . NO!
Here’s the way the IRS says it in the voluntary disclosure FAQ:
Q34. If, after making a voluntary disclosure, a taxpayer disagrees with the 20 percent offshore penalty, what can the taxpayer do?
A34. If any part of the penalty structure is unacceptable to a taxpayer, that case will follow the standard audit process. All relevant years and issues will be subject to a complete examination. At the conclusion of the examination, all applicable penalties (including information return and FBAR penalties) will be imposed. Those penalties could be substantially greater than the 20 percent penalty. If the case is unagreed, the taxpayer will have recourse to Appeals.
Win in FAQ #9 amnesty process filing
Today we received a letter from the IRS on an FAQ #9 application. Total World Domination. Accepted as filed, meaning no tax, no penalty, no nothing. We sent the whole package to the IRS in Philadelphia in early June. That gives you a sense of the time frame. Though I do see the IRS moving much faster recently.
Get them in, people. September 23 is coming.
UBS and IRS have a deal, beans to be spilled later
According to Reuters, UBS has settled with the IRS. Names will be named. (How many? Yours? We shall see.) Beans will be spilled. Fingers will be pointed. Bureaucratic chests will be puffed outward.
Meanwhile, back on earth. . . .
(I have been accused of being obtuse in the past. By my wife. Let me explain.)
The U.S. government thinks by its current strategies chasing international tax evaders that it is solving tax compliance problems, will now balance the budget with taxes collected on evil Swiss accounts, and unicorns and rainbows will follow. Taxpayers will faithfully report income and pay tax. Etc. Exquisitely wrong.
An invitation to a wager
Would anyone care to make a long bet with me?
I predict in 10 years that U.S. voluntary tax compliance rates will be lower than they are today. There will be more tax evasion. There will be more unreported income. We can agree on the statistic to be used to settle the bet in a decade.
I believe tax evasion will increase because the U.S. tax system is increasingly complex and the pricing for compliance/noncompliance is out of whack. Even a smart, alert person will inevitably have a foot-fault in tax law, and the cost of failure is magnificently and obscenely disproportionate to the error. Therefore over time we will see people failing to see the benefit of voluntary disclosure.
The UBS settlement will cause pain to a few thousand people. It will imperceptibly (over the next 5 years) damage the Swiss financial industry. It will not alter human behavior.
The only thing that will alter human behavior in tax systems is to balance the cost of compliance against the cost of noncompliance. What is the price perceived by a taxpayer for filling in the forms correctly and sending the correct amount of money to the government? What is the price perceived by a taxpayer for attempting — but failing — to do things correctly? What is the price perceived by a taxpayer for telling the tax system to go stick it’s nose in a dead bear’s bum?
And no, Congress, you can’t achieve the tax revenue result you want by ratcheting penalties up until you have the tax equivalent of capital punishment for a parking ticket. Which is exactly where we are right now for many people with undisclosed offshore accounts.
Evidence of IRS’s focus on identifying new banks
Yesterday I posted about the IRS strategy was in the FBAR amnesty process–a quest to identify other Swiss banks, then go after them hammer and tongs (Caution: sound file) in order to squeeze names of U.S. taxpayers out of them or scare bank customers into voluntary disclosure.
Here’s evidence that the hunting strategy is indeed what the IRS is doing. Source: the Statement of Facts in the recent plea bargain between Jeffrey Chernick and the U.S. government. Mr. Chernick has identified a smaller Swiss bank in his plea bargain (we don’t know the name of the bank).
Here is a key excerpt from the Statement of Facts, with the tell-tale information in bold:
SWISS BANK EXECUTIVE was a former UBS manager in the United States cross-border business and left UBS because of concerns over UBS’s entry into a Qualified Intermediary Agreement with the IRS. In or about approximately 2003, SWISS BANK EXECUTIVE convinced the defendant to invest a portion of his offshore assets with a smaller Swiss bank located in Zurich, SWISS BANK. SWISS BANK EXECUTIVE told the defendant that since SWISS BANK had no presence in the United States and had not entered into a Qualified Intermediary Agreement with the IRS, it was not subject to United States scrutiny and therefore could not be pressured by the United States government to disclose his identity and account information to United States authorities.
The theory behind this is pretty clear. The Bank of Nova Scotia had a similar beef with the U.S. government in the early 1980′s. The strategy (for taxpayers) became quite clear: if you are doing something manky, do it with a bank that has no physical contact at all with the United States. Otherwise the bank will be faced with a hard choice: save its Federally-issued charter to do business in the United States, or throw you in the ocean like so much chum to meet your fate in a maelstrom of swarming (tax) sharks. (Hey, how ’bout them metaphors?) And of course, at that point the President of the bank will invite you for a meeting which begins with him saying, “Sorry, chum, but I have no choice.” (Bad pun. I know. So sue me.)
Anyway. The point. What’s the point, Phil? The point is that the U.S. government now has specific information about another Swiss bank, extracted from Mr. Chernick as part of the plea bargain. Let’s see what the IRS can do with this information.
BONUS EXTRA FOR AFFICIONADOS!
Because I know you care, I am attaching a full copy of the Statement of Facts after the break. This is so you can see how the end-game for a criminal tax evasion plea bargain looks like.
Click below to continue reading, or ignore it and continue with your day. Jack Townsend parses the meaning of the plea bargain here and here. Read more…
Is the IRS sneaky or sloppy with the new amnesty procedure?
The IRS process for starting an amnesty application for an offshore bank account has an interesting thing in it. You tell me: sneaky or sloppy?
The process up to now
The process for an amnesty application up to now has been pretty clean. Start the voluntary disclosure process, go all the way to the end, and get presented with a closing agreement. You agree to that? Sign and pay. Taxes, penalties calculated per the amnesty offer, interest. You’re done.
If you don’t like the closing agreement (because, oh, hypothetically you balk at the galaxy-sized penalties in relation to the peanut-sized tax liability for unreported interest), you then have a choice. You can opt out of the amnesty program and try your luck with the normal audit process.
This is spelled out in the IRS’s FAQ (warning! PDF), which says:
28. If the taxpayer and the IRS cannot agree to the terms of the closing
agreement, will mediation with Appeals be an option with respect to
the terms of the closing agreement?
No. The penalty framework and the agreement to limit tax exposure to the most
recent 6 years are package terms. If any part of the penalty framework is
unacceptable to the taxpayer, the case will be examined and all applicable
penalties may be imposed. Any tax and penalties imposed by the Service on
examination may be appealed, but not the Service’s decision on the terms of the
closing agreement applying the penalty framework.
Pretty simple, eh? They are saying the amnesty process is a package deal, take it or leave it. But they’re also saying you can try your luck on the (Warning! YouTube! Kay Starr! Old Fabulous Music!) that is the IRS audit process.
Is that all out the window?
The new process and the letter
The new process has a letter to be signed by the taxpayer (warning: Word document). It is pretty clearly designed for IRS triage purposes, to save the Criminal Investigations unit a lot of unnecessary work.
But the letter has some sneaky/sloppy language in it. Read this:
To be included with all letters:
By signing this document, I certify that I am willing to continue to cooperate with the Internal Revenue Service, including in assessing my income tax liabilities and making good faith arrangements to pay all taxes, interest, and penalties associated with this voluntary disclosure.
The interesting part is helpfully highlighted for you by mygoodself.
So what do they mean by that? If a taxpayer signs this letter, is the taxpayer locking himself/herself into paying the amnesty penalties? That would be on interpretation of someone promising to pay “. . . penalties associated with this voluntary disclosure.”
Is the taxpayer prevented from rejecting the amnesty package and going for possibly lower penalties under the normal audit process?
What I’m doing
I think the IRS was sloppy. I don’t think they mean to stop taxpayers from rejecting the amnesty package and going for a ride on the Wheel of Fortune.
I plan to rewrite their sample letter to my satisfaction.
Next action @ you
You, with the offshore bank account problem. Give me a call at +1-626-437-2500 (mobile). Let’s clean up the mess.