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'Cheat'? I don't think the word means what they think it means.
November 19, 2009
Reuters Headline:
Nearly 15,000 Americans admit offshore tax cheating
They are talking about the response to the recent IRS offshore amnesty. No doubt there were plenty of true tax cheats in the bunch, but many amnesty participants -- and all of the ones I'm familiar with -- aren't tax cheats at all.
The amnesty allowed taxpayers to file the "FBAR" disclosure of foreign financial accounts to avoid the horrendous 50%-of-the-account-balance annual penalty. This penalty applies whether or not you have undisclosed income. In many cases, it applies even if you don't own the account. For example, a payables clerk with signature authority over her employer's Canadian bank account is required to file FBAR disclosures. Most of the disclosures we had were of this sort.
Other filers were students who spent time overseas or executives with temporary overseas postings who opened bank accounts while offshore to pay day-to-day bills. If the account balance went over $10,000 during the year, the tax law in its majesty hits them with the same 50% penalty for non-filing as the worst UBS tax evader. The largest amount of unreported income I saw was $200.
The Moral: Beware lazy headline writers.
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Comments
1. This is Reuters. 'nuff said. (Well, in the Department of Damned with Faint Praise we could at least say Reuters isn't A.P.).
2. But you are correct. There is a staggering ignorance here on the part of the press. And Congress. And the IRS.
3. The situation is ripe for Puritan-esque moralizing. I believe the penalty structure being applied to offshore account tax problems is driven by a similar fervor.
4. Do the stats. Total U.S. persons living abroad with accounts > $10K + total immigrants in U.S. who continue to have accounts in their home countries with balances > $10K. That's your denominator. Your numerator is 14,700. There's your compliance statistic by which to measure the success of the recent voluntary disclosure program.
5. Consider the Law of Unintended Consequences. The people who are not part of the 14,700 but should be. How many will now voluntarily report, having seen the blood on the floor?
6. I predict the long term consequences of the ill-conceived enforcement practices at the IRS will be lower levels of voluntary compliance by taxpayers.
7. We will need the government's new health care plan to pay for the treatment of all of the broken arms in Washington DC as bureaucrats and politicians pat themselves on the back for a Job Well Done and Mission Accomplished.
@philiphodgen
Posted by: Phil Hodgen | November 19, 2009 10:08 AM
Phil, excellent comment!
Posted by: Joe Kristan | November 20, 2009 9:44 AM
As a retired IRS employee, I can assure you that one of the benchmarks for the IRS is publicity. The IRS believes that publicity will foster a tax compliance society. I can assure you that the IRS issued a press release that had the wording of evasion or evading. Rarely if ever have I seen the IRS issue a press release with the word "cheats".
Posted by: Jimi | November 20, 2009 12:40 PM