The Offshore Voluntary Disclosure Program: how to get screwed

Written by Andrew Henderson

Reporting from: Ho Chi Minh City, Vietnam

In 1725, a Swedish man sat in the bedroom of his mansion, gun to his head.

He was Simon Affleck, a tax collector appointed by the King of Sweden to shake money from peasants in Swedish-controlled Finland. He was so feared and so ruthless, he was named “The Hound” by those he harassed. Simon’s place as one of the most infamous tax collectors in history earned him great benefits, including the ability to rent a palatial estate directly from the King.

But when the Great Wrath came to Finland, Simon knew it was all over. As the peasants he looted stood ready to break down the door to his mansion, he killed himself, not wanting to give his victims the satisfaction of doing it themselves.

These days, you have to wonder if the American tax mafia is equally as spiteful.

US citizens living abroad have the unique privilege not only of paying tax on their entire worldwide income, but also of wading through a litany of forms and requirements to declare their offshore bank accounts each year.

Of course, these “offshore” accounts are nothing more than local bank accounts for Americans who have chosen to live somewhere else. For a country that claims it operates on a free market economy (insert joke here), the IRS sure doesn’t like people voting with their feet to leave American soil.

Maybe that’s why there is so phenomenally little education coming from the IRS on exactly what Americans living overseas need to declare. Countless US citizens have become caught up in tax dragnets simply because they didn’t know they were doing something wrong by not declaring their “offshore accounts”.

After all, these citizens never intended to act immorally. They merely needed a bank account to deposit their paycheck or business earnings and pay the bills where they live.

Thank God the IRS offered them a wholly altruistic solution in the form of its Offshore Voluntary Disclosure Program.

Through the voluntary disclosure program, often called “tax amnesty”, evil violators who dare keep money in another country – even one they actually LIVE in – can come clean to Uncle Sam. The rub is, you have to find him before he finds you.

Statists love to argue that government is constantly improving. That the evils of bad government, from genocide to discrimination to theft, are a thing of the past in today’s “civilized” era of Big Government. The IRS is far superior to Simon Affleck, because… well, just because.

However, it’s recently been discovered that – please sit down if you’re not already – the IRS lied to participants of its Offshore Voluntary Disclosure Program.

Earlier this year, it was revealed that hapless US citizens who signed up under the voluntary disclosure program – and were accepted by the IRS themselves – had their acceptance revoked.

Why? It turns out the IRS, bless their little hearts, already had something brewing on some of these people in another wing of their massive headquarters.

In an era when the US government is passing arrogant laws like FATCA, it’s easier for them to get your account data directly from the bank. Worried about being denied access to US markets, banks around the world have become so petrified they’ll hand over account data to auditors based merely on a request.

It makes you wonder if the IRS offers a voluntary disclosure program merely to get Americans to fess up about offshore accounts, knowing full well they already have data on many of them anyway. While the disclosure program allows “honest” taxpayers to avoid criminal prosecution and enjoy a reduction in fines, all bets are off if the IRS kicks you out of the program.

It’s been claimed that the issue in the case of those who were kicked out of the voluntary disclosure program earlier this year was due to computer systems at the IRS being out of sync. Some aggressive auditor got someone’s name from some source before the individual applied and was approved for the program. Months later, when the disclosure program folks realized said individual didn’t come forward before they found him, they cancelled his status in the program.

Not only did these taxpayers get screwed by a system that provides basically zero education on their tax form obligations as expats, it also screws them based on its own massive bureaucratic incompetence.

Such is life as a US citizen today. They can make countless errors, move at a snail’s pace, and refuse to answer any of your well-meaning questions (they’re not tax professionals, you know), but the second you try to work with them, they’ll make you pay.

Since the days of the New Testament, tax collectors have been regarded as backstabbing, immoral low-lifes with no regard for fairness. One must wonder if the Offshore Voluntary Disclosure Program, with all of the American government’s incompetence, is a total sham.

The United States has more laws on the books than any other country in the world, and the most aggressive enforcement of many of them. Vietnam, where I’m at now, has amazingly lax enforcement compared to The Land of the Free. (Which one is the authoritarian, communist country again?)

The IRS voluntary disclosure program is yet another example that the US government has no mercy to anyone who misses the boat on so much as one law that they barely even make the existence of known.

More importantly, it’s a lesson to those who think the principles and methods of tax collection today are so much more civilized than the days of roving thieves like Simon Affleck. They aren’t. I pity anyone who trusts the IRS to treat them right in it’s voluntary disclosure program. You might as well walk up to a cop and confess to a brutal crime.

 

Andrew Henderson
Last updated: Dec 30, 2019 at 3:29PM

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13 Comments

  1. kevkos30

    Better off not dealing with the system any more than is absolutely essential to your freedom.

    • nomadcapitalist

      Thanks for the comments.

  2. bubblebustin

    19 months and counting after being misled into OVDI. Bill Yates former attorney with the IRS told me it was because the IRS underfunded. The new IRS Commissioner disagrees and said throwing more money at the IRS won’t fix what ails it. I agree with the latter, why throw more good money after bad at the paper bombing, revenue sucking black hole that the IRS is? Get rid of it.

    • nomadcapitalist

      Thanks for the comments. This is how government works: any issue with their service is turned back on you. It’s a shame.

  3. SadImmigrant

    In addition to American living abroad, the Offshore Voluntary Program screwed a lot of immigrants to the US who did not know about the Foreign Bank Account Report (FBAR) form. Also to blame are all the lawyers who threaten them of deportation if they didn’t participate in the OVD program and give away 27.5% of their home account. Shameful!

    • nomadcapitalist

      It is shameful, and it’s sad. Of all the people I meet abroad who dream of educating their children in the US, moving to the US, etc., I try to explain to them just how convoluted the system is in the USSA. Fewer people want to move to the US these days as I’ve written before, but there are still some for whom the lights of perceived “Freedom” shine too bright.

  4. David S Lesperance

    If you are a US person for tax purposes even if you reside outside of the US, you are legally obligated to fill a 1040, FBARs etc. Even if you are paying tax in another country; never lived in the US; or just got citizenship through a US parent; under US law, you are as much of a tax evader as the native American who opened up a non-disclosed Swiss Bank account.

    Whistleblowers, John Doe summons, exchange of information, FATCA, Qualified Intermediary Regime all add up to any non-disclosed account coming to the attention of the taxing authorities. If the account is tax compliant, not a problem. If it is not, then the account holder can expect the absolute worst.

    Watching the reaction of holders of non-disclosed, non-compliant accounts to all this is similar to watching someone who is stricken with a disease caused completely by their own actions/inactions. As a result, the whole process can best be viewed through the Kubler-Ross model of “Stages of Death” :

    Denial — “Thank God I don’t bank with UBS”, “No problem my bank doesn’t have a US office”, “I am safe in Singapore” etc. It’s just a savings account in my country of residence, too small to be detected. Denial can be conscious or unconscious refusal to accept facts, information, or the reality of the situation. Denial is a defense mechanism and some people can become locked in this stage.

    Anger — “Why me, I paid tons of other taxes?” “My tax burden is unfair!””I already pay tax in my country of residence on this income. That’s double taxation and unfair!”. Once in the second stage, the individual recognizes that denial cannot continue. Because of anger, the person is very difficult to deal with due to misplaced feelings of rage and envy. Anger can manifest itself in different ways. People can be angry with themselves, or with others. When I get a call from a client who is at this stage, I let them rage against the machine for about 15 minutes and then say, “I agree it is unfair, but at some point, your cellmate is going to get tired of hearing about it”;

    Bargaining — “I would give them something but the cost of this Voluntary Disclosure Program is too much” “I will pay all my tax from this point forward and let sleeping dogs lie”. The third stage involves the hope that the individual can somehow postpone or delay death/prosecution. In terminal disease, bargaining rarely provides a sustainable solution. With tax problems, it is the last chance to have the least worst result. Not acting on this point because there is a possibility that you are already on the IRS radar screen is SILLY. Entering a voluntary disclosure will either a) make you compliant (if not on radar); or b) give you mitigating factors on treatment if you are already on their radar screen;

    Depression — “I’m so sad, why bother with anything?”; “I’m going to die/ get caught soon so what’s the point?”During the fourth stage, the dying person begins to understand the certainty of death/ prosecution.

    Acceptance — “It’s going to be okay.”; “I can’t fight it, I may as well prepare for it.”
    In this last stage, individuals begin to come to terms with their mortality/ prosecution.

    • Andrew Henderson

      Thanks for the in-depth comments!

    • nomadcapitalist

      Thanks for the comments.

    • Deckard1138

      Thank you for your pointless, fatalistic point of view. Now, why don’t you expend a fraction of that energy trying to fight against America’s immoral citizenship-based taxation system which is the root-cause of all this needless global misery?

      • David S Lesperance

        Actually, I would argue that I am being realistic about the remote to non-existence political chance that FATCA is going to be revised, let alone overturned, let alone citizenship-based taxation being changed. In short, I see no point in tilting at what I believe to be windmills. If you think this is energy well spent by you, then more power to you.

        Rather, I think that my energy is best spent a) warning people of this reality and its impact; and b) joining with various tax colleagues in the much more winnable fight of decreasing the costs of voluntary disclosure for those who are “innocent” victims.

  5. frankie

    Just got screwed half a million by the OVDP, they say you could opt out? Sure you can, but then that’s like saying your can choose to get lifetime in jail if you don’t go for the death penalty but you will be put together with gang members that is looking to kill you sooner or later after they torture you that is!

    • Andrew Henderson

      The empire will change and manipulate the rules to win almost every time. You have to have a finely tuned battle plan.