Wars with Canada turn out badly. While the Canadians are a seemingly peaceful people, content with their Tim Horton’s and their hockey, they seem to come out on top in a fight. Ethan Allen and Benedict Arnold learned that lesson early on, and things went no better in 1812.
Now IRS Commissioner Shulman is baiting Canada for another war:
Premier David Alward, one of New Brunswick’s best known dual citizens, says he has been caught in the same broad net U.S. officials have cast to catch international tax evaders.
This prominent Canadian has been dragged into a U.S. tax nightmare the same way as thousands of other well-meaning expats:
Alward was born in Beverly, Mass., and spent his early years in the United States before his family settled in New Brunswick.
“I’ve had to scramble like thousands of other people,” Alward said, adding that he is complying with the U.S. demand for tax returns going back years and detailed disclosures.
The IRS is going after offshore tax violators in a big way. It’s natural that there are more in Canada than anywhere else because of geography and economics. But the IRS approach has been to enforce traffic safety by shooting jaywalkers.
While the US taxes its citizens on worldwide income, many, maybe most, expatriates have little or no U.S. tax liability. The foreign earned income exclusion and the foreign tax credit take care of that. But the long-obscure “FBAR” requirement to report foreign financial accounts over $10,000 threatens to impoverish many of these people anyway. The penalties for failing to file the FBAR Form, Form TD 09.22-1, are the greater of $10,000 or half the value of the account. The IRS is freely asserting these penalties even when little or no tax is due, and is even applying them to Canadian retirement accounts of U.S. expats like Alward.
The IRS has had two “amnesties” to draw expats into its loving arms, and the program has been a disaster for many ordinary folks who have signed up to try to clean up their records. Taxpayers living in Canada since childhood are presumed to be tax cheats, and penalized accordingly.
The IRS could learn a lot from states in handling these issues. The IRS “amnesties” have been progressively more restrictive, with higher penalties, making it more and more dangerous for folks with trivial paperwork violations to come out of the cold. Many states, in contrast, have standing deals where out-of-state taxpayers can clean up their tax histories by filing a few years of back tax returns, no questions asked. If the IRS would take this approach, and waive FBAR penalties for accounts under, say, $200,000 — and for all retirement accounts –maybe we won’t have to worry about the White House getting sacked again.
A Missed Opportunity on Financial Reform [WSJ]
Former SEC Chairman Arthur Levitt is none too pleased with the financial reform bill that’s likely to get approved by the Senate and he says exactly why in an op-ed in today’s Journal, “One of many bad ideas that made it into the bill: Public companies will now have a wider loophole to avoid doing internal audits investors can trust. This requirement was the most important pro-investor reform of the last decade, and it worked. Of the 522 U.S. financial restatements in 2009, 374 were at small firms not subject to auditor reviews.”
But that’s not all! Mr Levitt outlinespic failure including:
• “Chuck Schumer’s wise idea to let the Securities and Exchange Commission (SEC) become a self-funded agency will likely be killed by appropriators who are unwilling to give up the power of the purse.”
• “Barney Frank’s (D., Mass.) effort to pass a new law to overcome the legal precedent of the 2008 Supreme Court’s Stoneridge decision, which allows third-party consultants, accountants and other abettors of fraud to avoid liability. Again, another sellout of investor interests.”
• “Congress didn’t deal with the massive problems of Fannie Mae and Freddie Mac. It’s one thing to fail to see trouble before it happens. Now, there’s no excuse. The central role played by these two organizations in the financial crisis is indisputable. Congress had a chance to fully restrict these agencies from anything but the most basic market-making activities, and it didn’t.”
What does all this (and more!) mean? Oh, nothing really. Levitt says that we’ll just have to wait for the next financial apocalypse to get it right.
InfoLogix Announces the Engagement of KPMG, LLP as the Company’s Independent Registered Public Accounting Firm [PR]
McGladrey resigned on June 10th and the company’s filing stated that were no disagreements yada, yada, yada although McGladrey had identified a material weakness in the company’s internal controls and their most recent audit opinion included a going concern paragraph. It wasn’t enough to spook KPMG, who got the blessing from InfoLogix’s audit committee on Tuesday. Enjoy.
BP Relied on Faulty U.S. Data [WSJ]
“BP PLC and other big oil companies based their plans for responding to a big oil spill in the Gulf of Mexico on U.S. government projections that gave very low odds of oil hitting shore, even in the case of a spill much larger than the current one.
The government models, which oil companies are required to use but have not been updated since 2004, assumed that most of the oil would rapidly evaporate or get broken up by waves or weather. In the weeks since the Deepwater Horizon caught fire and sank, real life has proven these models, prepared by the Interior Department’s Mineral Management Service, wrong.”
Leadership changes at Wichita Grant Thornton office [Wichita Business Journal]
“Lori A. Davis is the new managing partner at the Grant Thornton office in Wichita, the company announced Wednesday.
Davis will take the place of Jarod Allerheiligen, who will become the managing partner of the Grant Thornton operations in Minneapolis. The change in responsibilities is scheduled to take place Aug. 1.”
Ex-Detroit Mayor Kwame Kilpatrick indicted by feds on 19 mail fraud, tax counts [Detroit Free Press]
“Despite Kilpatrick’s repeated claims to the contrary, the indictment says he used fund money for campaign and personal expenses, ranging from polling to yoga and golf lessons to college tuition for relatives.
Prosecutors contend he failed to report more than $640,000 in taxable income while mayor that he received in the form of cash, flights on private jets and perks paid for out of the civic fund.”
$2 million payment to Phila. tax-amnesty program [Philadelphia Inquirer]
Philly’s tax amnesty program received a $2 million payment on Tuesday, it’s biggest since the program started on May 3. Collections so far have reached $18 million, according to city officials. They also expect to reach their goal of receiving between $25 and $30 million by the end of the program on Friday.
Feinberg to quit pay czar post to focus on BP fund [Reuters]
This guy is a glutton for punishment.
Pennsylvania’s tax amnesty program started on April 26th and to help taxpayers get off their non-complying asses, this ad has been introduced to motivate Keystone Staters that owe back taxes.
If this doesn’t get Quaker stoners into compliance, nothing will:
Personally, we would liked to have seen the PA Dept of Rev go the route of PICPA and incorporate Snuggies or breathlessly judgmental friends. Although we understand that scare tactics may be effective, a state must be pretty desperate to run this to get taxpayers motivated.
Btw, Philadelphia’s tax amnesty program started today and, so far, is considerably less Orwellian.
More news out of the land of Quakers, as Pennsylvania has announced a tax amnesty program for delinquent taxpayers. The program allows tax deadbeats to pay their back taxes but all the penalties and half of the interest will be waived. Pennsylvania’s will begin on April 26th and be open for 54 days.
The AP reports that the state could generate an additional $190 million in revenues for the state which, like pretty every state, is in a dire need of revenues.
For those that participate in the amnesty program, they’ll have to be on good behavior going forward, “participants who fall into delinquency again within two years may be required to pay the full penalties and interest that had been waived. Also, once the amnesty period ends, a special, ‘nonparticipation penalty’ of 5 percent will be levied against delinquent taxes, penalties, and interest not paid in full.”
Participants will also not be eligible for future amnesty programs. Sounds like a novel idea right?
Well, maybe not.
Our resident tax guru, Joe Kristan, is not a fan of tax amnesty programs saying, “they become an expectation and they make chumps of compliant taxpayers.”
Joe’s home state of Iowa passed a tax amnesty program back in 2007 and his sentiments haven’t changed since then, “[Iowa is] adding more
loopholes targeted tax incentives to its tax law while doing nothing to lower rates or broaden the tax base.”
But Joe, being the silver lining-type, also notes, “those of us who charge for tax work by the hour, it truly helps our economic development during an otherwise slow time of year.” So tax pros will take those new clients despite the bad policy that encouraged them.
Regardless of the bump in off-season revenues, the Tax Policy Blog (who Joe cites) noted that these programs are of little value if reform doesn’t accompany it, “if lawmakers decide to implement tax amnesty programs, they should be accompanied by fundamental tax reform that makes the tax code simpler and easier to comply with.”
So it appears that tax amnesty is nothing more than a duct tape solution from a policy stand point but it certainly makes good pandering fodder in an election year.
Pa. will offer tax amnesty [AP via Philadelphia Inquirer]