The Offshore Voluntary Disclosure Program: how to get screwed

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.