December 13, 2010 - Phil Hodgen

New voluntary disclosure amnesty program coming?

The vast, vast majority of Americans with offshore bank accounts did not enter the 2009 Voluntary Disclosure Program.  I would guess that the participation rate is in the low single digits — people who declared previously unreported accounts are probably outnumbered 20 to 1 by the people who have not reported them.

The Amnesty Bus is Coming Back

The IRS Commissioner is hinting at a new amnesty program.  In a speech last week in Washington DC, he said:

We have been scouring the vast quantity of data we received from the VDP applicants and from other sources. Although more data mining is still to be done, this information has already proved invaluable in supplementing and corroborating prior leads, as well as developing new leads, involving numerous banks, advisors and promoters from around the world, including Asia and the Middle East.

Given its success, we are seriously considering another special offshore Voluntary Disclosure program. However, there will be some fundamental differences. Taxpayers will not get the same deal as those who came in under the original program. To be fair to those who came in before the deadline, the penalty — and thus the financial cost to participate — will increase. Let me say too that we expect to make the terms of any new program available to those who have already come in after October 2009 when that program expired. Stay tuned for more details as they become available.

Read the entire speech.

We are going to now see the continuation of prior policies, but harsher.

Keep Doing What You’re Doing . . .

I have an opinion about that type of thinking: “Keep doing what you’re doing and you’ll keep getting what you’re getting.” The fact that Mr. Shulman keeps doing what he’s doing means he thinks the results are worthwhile, and he wants more of the same.

We (outside the IRS) are not privy to the statistics. Maybe the results he’s getting are good. Maybe the statistics are being misinterpreted. We don’t know.

One thing is certain, however. The results are not optimized. The IRS has access to internal statistics. But the fact that Mr. Shulman is hinting at reviving his old business model — now with higher penalties! — tells me that Lessons Have Not Been Learned.

Get Out of the Building

Steve Blank would tell Mr. Shulman to get out of the building. The answers are to be found out in the real world. They aren’t found in 1111 Constitution Avenue.

Go talk to Revenue Agents (and if they don’t talk to you bluntly and honestly, you have a problem, Mr. Shulman). Go talk to lawyers and accountants who are face-to-face with the so-called tax evaders. Go have a town hall meeting with American Citizens Abroad.


There are people who have been engaged in true tax evasion — skimming money from their businesses and not paying tax, for instance. There will always be people like that. Penalties appropriate to the behavior are in order.

But my bet is that if you run a statistical analysis on your 18,000 Voluntary Disclosure Program participants (pre- and post-October 15, 2009) you’ll see an interesting pattern:

  • The amounts of unreported income wouldn’t raise an eyebrow in a routine domestic audit; and
  • The source of funds in the account is after-tax income.

This means that in the vast bulk of cases, the penalties are being imposed for paperwork errors. And the penalties are being set very high, with an intent to strike fear in the hearts of U.S. taxpayers. Is terrorizing average taxpayers an optimal strategy? I think not.

Voluntary Disclosure