Nodes in the News: "Smarter IRS" or IRS that Smarts?

In remarks delivered to the New York State Bar Association Taxation Section, U.S. IRS Commissioner Douglas Shulman (below) said on Jan. 26 that “working smarter” is the operating theme of the IRS as it deals with the complexity of tax law, especially as it applies to what he described as "high wealth individuals and their related entities." (We're unsure if he meant spouses and children, but let that pass).

Especially tageting the wealthy and offshore financial actvity by Americans in general, Shulman says he has launched something he calls the "Global High Wealth Industry Group," (GHWIG) which he described as a “game-changing strategy” to centralize and focus its compliance expertise involving rich folks.

But what caught my gimlet eye was Shulman's plan for IRS efforts to combat offshore tax evasion by identifying what he called "points of leverage, also known as 'nodes' of activity," where multiple people not paying taxes can be detected. Financial institutions and promoters of tax evasion schemes are potential nodes of activity, he claims.

Tax Geek Speak Threat

Other than calling them "nodes" in a sort of tax geek speak, what on Earth is new about financial institutions being used by tax evaders? Crooks use banks don't they?

But Shulman went further into IRS Gestapo mode, with a not so veiled threat: "We are expanding our 'knock and talk' and other programs to visit thousands of [tax] preparers to discuss their operations and ways to reduce preparer error rates,” Shulman said.

So CPAs, especially those few who are qualified to advise on U.S. offshore taxes, better get ready for that jackbooted IRS agent's knock on your office door -- if they even bother to knock at all.

I have had a small soft spot in my heart for Mr. Shulman ever since he, in effect, called Senator Carl Levin (right) on his repeated lie that $100 billion was lost annually to offshore tax evasion by Americans.

IRS Fear Factor

But the Commissioner happily has carried on the traditional IRS fear campaign, of which his New York speech is the latest example.

One of the largest obstacles to many people considering going offshore financially is the fear factor to which the IRS constantly contributes.

I've often commented on the continuing IRS policy of engendering fear in the hearts and minds of taxpayers. Last August I noted that Columbia University law professor John Coffee, commenting on the U.S.- Swiss settlement of the UBS tax evasion scandal, said that in his opinion creating fear in U.S. taxpayers was always the goal of the negotiations between the Swiss and U.S. governments, that the court case brought in Miami against UBS was less about the bank than about instilling fear in all American taxpayers.

"The Internal Revenue Service was targeting American taxpayers who try to avoid paying tax," Coffee said. "The U.S. wants to scare and intimidate U.S. taxpayers into the voluntary disclosure program. It's all about a law enforcement strategy to intimidate people into voluntary disclosure."

Tax Profiling

I think we can conclude that Commissioner Shulman's latest  announcement making "wealthy" Americans and their advisors special targets fits into this policy of fear -- even if this discriminatory policy ignores the equal protection of the laws guaranteed by the U.S. Constitution. He seems to believe that this sort of "tax profiling" of groups based on their level of income or net worth and their offshore activity is a an acceptable form of presumed guilt.

Consider for a moment what the reaction would be if a police chief announced a special task force to deal specifcally with crimes by African Americans or Latinos, because statistics show crime rates are higher in these groups. But it's OK to imply that all wealthy people with offshore business are tax cheats.

A few years ago congressional hearings on the IRS exposed publicly what many Americans knew already: the IRS too often conducts its  affairs like a financial Gestapo, running roughshod over citizens rights.

One after another, witnesses offered proof of how ruthlessly the IRS had used its unbridled powers. This agency viewed all taxpayers as adversaries, assuming them guilty until they could prove otherwise. It snatched property, seized bank accounts and turned people out of their homes, often without regard to due process of law. Much of this activity was carried on in secret with little accountability.

Excrescence

Well, we don't support tax evasion, but we do support legal tax avoidance.

By the way, Commissioner's use of the word "node" is interesting for we lexicographers.

A node can be defined, as he used it, as "a centering point of component parts," but a node is also defined as  "a knot, protuberance, or knob."  In turn "protuberance" is defined as a "bulge, bump, or excrescence."

Commissioner Shulman better watch his words!

 

  
You can learn all about "going offshore" with your retirement plans and about legitimate and legal offshore financial centers in my just published 4th edition of Where to Stash Your Cash Legally: Offshore Financial Centers of the World. Find out how here.

Comments

[Kevin Moore]

Many Americans have for years been aware of the tactics by the IRS to intimidate and bully. What is especially appalling is how the IRS goes after offshore banking institutions with the ultimate goal of forcing them to close access to legal activities by American citizens. Somehow, somewhere, this has all got to stop.