IRS agents are given tremendous power. When they abuse it, they should face harsher penalties than those not so empowered.
Last night I heard on NPR the story of a New Zealand expatriate that did not file US taxes for several years as is required by every US citizen no matter where they live or how long they've lived outside the US. He voluntarily notified the IRS of his oversight and paid the $20,000 in back taxes. The IRS then told him his penalty exceeded $140,000.
> given tremendous power. When they abuse it, they should face harsher penalties than those not so empowered.
I think this is a concept that should be applied with a broad stroke across society. When someone who is empowered by the people (afforded special privileges or abilities by a government that is democratically elected) commits a crime, that crime is inherently twofold. Liability needs to increase in proportion to the amount of power that has been granted.
> The IRS then told him his penalty exceeded $140,000.
His penalty did exceed $140,000 though, they didn't make this up to punish him. That's what happens when you just ignore federal laws.
After meeting with the IRS, the penalty was reduced to $25k.[1] A New Zealand savings account would have averaged ~4%/year over that time period, so subtracting the gains from his owed $20k leaves about $20k in penalties.
What's an appropriate amount to discourage tax cheats? They're called penalties for a reason... are we just supposed to trust everyone who, when caught, claim they 'didn't know' about the law?
Van Horn contacted the IRS's Taxpayer Advocate Service, which agreed to
work on his case. After a series of offers and counter-offers, he says,
the result was a single "non-willful" FBAR penalty of $5,000 per year,
or $25,000 total.
Snark aside, there's a huge difference tax negligence and tax fraud.
Not filing taxes for 5 years is fraud.
Filing and paying taxes while working for the IMF -- but not realizing you should've been paying the 'employer' half of payroll taxes as well -- is negligence.
The USA is the only country that requires tax returns & payments of expats that make no income from their home country and no longer live there. I'm not surprised many 'normal' people are very unaware of these facts when they move away from the USA.
On top of that you have huge accountant costs to file these complicated penalty prone returns even if you end up not owing any taxes year over year.
It's still 'negligence', your IMF example is just in part instead of in full.
I can sympathize with Geithner about his errors, but his situation seems much more obvious than the notion that you'd have to pay US taxes even if you're living and working outside the US. I bet most people would not even think that it was something that needed to be done, and I doubt the IRS sends you friendly reminders about it.
Perhaps my snark should've more explicitly called out Charlie Rangel. Nothing like misreporting your income while also being chairman of the Ways & Means Committee.
But really, all of the examples just underscore how insane the tax code has become.
Rangel's tax problems are probably less 'bad' than Geithner's. He owned a condo in the D.R. for 20 years, and over that time earned a total of $75k by renting it out. Less than $4k per year...
His excuse for not claiming the income is plausible too since the payments went straight against the mortgage through the resort it was attached to, so the money never hit his savings account. If you owned a home, rented a room on AirBnB, and then AirBnB paid off a small part of your mortgage, would most people know to claim that money as income?
That being said, the Nabors tax shelter mess, the unreported checking accounts, the multiple rent-controlled apartments, etc. all add up to show Rangel as a typical corrupt politician.
But really, all of the examples just underscore how insane the tax code has become.
I couldn't agree more. It's a problem when something like 50% of tax returns are wrong upon close examination.
I remember someone telling me that ignorance of the law is no defense. And I would think it wouldn't be too much to ask that a Federal Reserve Bank President be aware of tax consequences/implications.
I imagine if he lived abroad and still managed to owe $20k by his reckoning, his income and/or assets are non-trivial, and the IRS may have some cause to think he owes more (that's not to say they are correct).
Unfortunately the US tax system is a very adversarial one.
A programmer earning around $100k could easily accrue that kind of tax liability over a few years, even after deducting payment of foreign taxes. (But not penalties and interest for the delayed payments)
So he'd probably have less than 50k in income liable to taxation, and that puts him in the 15% bracket, so for 3 years his tax would be about 25k. How they got from there to 140k is an interesting question -- that's a hell of penalty & interest charge.
But you are obligated to file, even if you have zero income, and you are obligated to disclose assets, even if they're your spouse's.
There are several more requirements not related to income, or even if the citizen ever lived in the US (many people have US citizenship and have never stepped foot here), each of which can carry a substantial penalty if violated.
There are many people living in fear -- and many in substantial debt -- not about income tax problems, but about IRS filing requirements. The system is a monstrosity.
Last night I heard on NPR the story of a New Zealand expatriate that did not file US taxes for several years as is required by every US citizen no matter where they live or how long they've lived outside the US. He voluntarily notified the IRS of his oversight and paid the $20,000 in back taxes. The IRS then told him his penalty exceeded $140,000.