So, who among us didn’t see this coming? IRS Commish Doug Shulman has announced the establishment of a new enforcement unit targeting the very wealthy. The group, called the Global High Wealth Industry, will specifically investigate partnerships, offshore trusts and other techniques used by the wealthy to hide income.
How wealthy is wealthy? Unlike a number of reality TV shows of late, this isn’t about faux millionaires. Try tens of millions of dollars wealthy.
The new enforcement group comes on the heels of a recent amnesty program offered to taxpayers who had been hiding money offshore. Tax pros, including me, viewed the amnesty program as the writing on the wall that the IRS would be ramping up enforcement. A mere two weeks after the extended amnesty deadline, the IRS confirmed that suspicion.
Whether the new enforcement group is a success remains to be seen. Some critics argue that an additional level of administration won’t help – and may, in fact, just confuse matters. But Shulman sees it differently: “You cannot assess compliance among the nation’s wealthiest individuals by looking only at their 1040s…. Our goal is to better understand the entire economic picture of the enterprise controlled by the wealthy individual and to assess the tax compliance of that overall enterprise.”
In an effort to recover income from funds that might have been hidden offshore, the US introduced a Voluntary Compliance Program that offers reduced civil penalties and no criminal penalties.
At the time, IRS Commission Doug Shulman described the program as stating:
The goal is to have a predictable set of outcomes to encourage people to come forward and take advantage of our voluntary disclosure practice while they still can… We set up a penalty framework that makes sense for them. They need to pay back taxes and interest for six years, and pay either an accuracy or delinquency penalty on all six years.
The program, which has tentatively been referred to as a success, wraps up on September 23, 2009.
But while the US program is winding down, the British program is just getting started. The UK has announced an amnesty program for unpaid taxes on income linked to offshore accounts.
The program is called the New Disclosure Opportunity and has similar provisions to the US program. The amnesty program begins September 1 and runs for six months. During that time, taxpayers have the opportunity to work out agreements to pay back taxes with a reduced penalty rate and little risk of prosecution.
The UK had previously resisted the urge to offer an amnesty program, hoping instead to force tax havens like Switzerland and Luxembourg to make disclosures. However, with government borrowing hitting an all time high, $21.4 billion last month, they decided to give it a second look. HM Revenue and Customs believes that the initiative could raise as much as $825 million over 4 years.
New Jersey wants your money. And they’re willing to waive a few penalties and interest to get it.
The Division of Taxation a new tax amnesty program. The program will run from May 4, 2009 to June 15, 2009 and will apply only to returns due on or after January 1, 2002 and before February 1, 2009. It will not apply to any taxpayer who is currently under criminal investigation or facing charges for tax evasion.
The deal is this: if you are willing to settle up, the State will waive all penalties, referral cost fees and one-half of the balance of the interest that remains due as of May 1, 2009. The catch is that you have to pay all of the tax that you owe plus half of the interest before the end of the amnesty period. You must also be compliant, meaning that you must have filed and paid any other tax obligations for all tax years.
The specific details are still being ironed out. Look for more information mid-April. Check your mailbox, too: the Division of Taxation plans an outreach mailing to all taxpayers who are known to have amnesty-eligible deficient and/or delinquent accounts.
When Senate Majority Leader Harry Reid (D – Nevada) pulled the immigration bill last week, the blame game started immediately. Conservatives blamed Liberals. Liberals blamed Conservatives. But nobody pointed the finger where it rightly belonged: at the American people.
While most surveys indicate that Americans aren’t opposed to an immigration bill that offers some form of amnesty to qualifying immigrants (though who qualifies has hardly been a consensus vote), most Americans are opposed to the cost of an immigration bill. In a recent poll, 70% of Americans agreed that illegal immigrants use more public services than they pay for in taxes. In a year in which government spending is increasing and the projected revenues are not, that means that Americans are loathe to embrace legislation that hits where it hurts the most: their own pockets.
And what a hit this bill would be. The Congressional Budget Office estimated that the bill as introduced would have cost the government as much as $126 billion over the next decade.
Where would the dollars go? Law enforcement measures including hiring additional workers and building the controversial fence along the US-Mexico barrier alone would cost $3.3 billion. In fact, more than half of the bill would fund law enforcement measures that will likely happen whether a comprehensive bill passes or not.
The remainder of the bill (nearly $50 billion) would be paid out to newly legalized immigrants in federal benefits. Over the next decade, it is estimated that legalized workers, guest workers and their families would claim $24.5 billion in tax refunds through the earned income credit and child credit, $15.4 billion in Medicare and Medicaid, $5.2 billion in Social Security benefits and $3.7 billion in food stamps and child nutrition programs. All billion with a b.
While it is estimated that there are between 11 and 15 million illegal immigrants currently in the United States, it’s difficult to gauge the their cost because much of the financial details are undocumented. Many employers are paying illegal immigrants “under the table” and that income escapes taxation not only on the immigrant level, but also on the employer level. As much as it is popular to blame immigrants, large scale companies like Wal-Mart fail to verify employment again and again – even after they were fined for federal employment violations – ostensibly because of economics. As long as Americans want to buy 10 tube socks for $1, companies like Wal-Mart will continue their hiring, sub-contracting and importing practices.
Despite the subversive nature of employing illegal immigrants, the conservative think tank, The Heritage Foundation, has made an attempt to quantify the cost. They estimate that for every dollar that an illegal immigrant receives, the US spends three dollars in services. This amount is, of course, disputed by those who again cite the undocumented nature of the income and claim that illegal immigrant taxpayers are on the rise. A story cited by the Tax Foundation indicates that undocumented workers are increasingly filing taxes, claiming that last year, 1.4 million people filed tax returns using ITINs (Individual Tax Identification Number) – a 40% increase.
This buffers the claim by proponents of the immigration bill who argue that, in the long run, tax revenue generated by new workers would offset virtually all the additional upfront spending. They advocate that it is likely that many of the immigrants who are legalized will become taxpayers and not tax consumers, just as many of those before them have done. In fact, Forbes reported encouraging news about second generation immigrant families. The difficulty is finding the data to support those claims on a wide scale – not because success stories don’t exist but because they are rarely documented.
Senator Ten Kennedy (D – Massachusetts) has said that if immigrants “work hard and play by the rules and work in very tough and menial jobs, they may have an opportunity to be a part of the American dream.” After all, America was founded on that very basis. But when it affects current American fiscal policy, we’re a little less likely to embrace that idea.
I want to know what you think: are American tax dollars a good investment in our future in a bill such as this? It is, after all, your money.
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