Treasury

5 New Ways the IRS Is Screwing America

Dumb disclosure laws, xenophobic banking regs, and worse

|

As the nation staggers toward the April 17 tax-filing deadline—otherwise known as National Crash Your Car Day—the immovable object of a debt-financed $3.8 trillion federal budget is incentivizing the irresistible force of rapacious government to scrounge for any and all spare change in the country's cushions.

Some of these desperate collection measures are new, internationally unprecedented, and already damaging to innocent individuals and institutions. Others are mere proposals so far, or accumulations of water torture-style outrages that comparatively tax-compliant Americans have tolerated for too long. What they have in common is an utter lack of demonstrated concern for the time, privacy, and freedom of U.S. residents.

In handy list form, here are five ways Uncle Sam's tax collectors are screwing America.

5. Preposterous Foreign-Income Disclosure Rules

The IRS wants everyone with more than $10,000 in foreign-based financial institutions to cough up every last detail of every last account. Let's say (just for the sake of argument) that in 1997 you married a French woman who had previously written a few articles for a soon-to-be-defunct UK newspaper, and had opted to park her checks in a London bank for walking around money on future visits. Let's say further that she has earned enough European-based income over the ensuing 15 years to exceed that five-figure savings threshold.

Result? As of 2012, that London savings account, and every single other foreign based account you and your wife may have, must now be divulged in full—complete with your estimation of its highest value during the previous year—to the Internal Revenue Service.

Good luck figuring out form TD 90-22.1, by the way. My tax professional (who charged me more than $1,000 for her services, though it was worth every penny), shrugged, and gave me a yellow highlighter so that maybe I could shed light on the relevant verbiage of TD 90-22.1 and its rich cousin, form 8938. Even the Government Accountability Office has trouble; "Extent of Duplication Not Currently Known, but Requirements Can Be Clarified" was the subtitle on its recent paper on the dueling FBARs (foreign bank account requirements).

The important thing to realize is that by failing to cough up each and every detail of accounts that are filled with your legitimately earned and (in my case) already taxed money, you are subjecting yourself to a $100,000 fine and up to five years in prison.

If you happen to have some money overseas, and are nervous about the U.S. government's ability to harass or imprison you, you're probably better off burying the cash in a can. Or depositing it in a country that doesn't care about playing by Uncle Sam's rules. Which brings us to….

4. Scaring Away Foreign Banks

This isn't a new IRS rule, it's a new consequence of a lousy new law, called the Foreign Account Tax Compliant Act (FATCA … get it??).

This 2010 law, which was passed in an effort to increase tax collections on Americans using shelters abroad, is estimated by its supporters to maybe bring in an extra $8 billion in receipts over the next 10 years, or less than $1 billion per year. This for a federal government that spends $1 billion every two and a half hours.

Uniquely in the world, the United States government is demanding that all foreign financial institutions disclose the details of all U.S.-based accounts and withhold 30 percent in potential taxes from accounts held by other institutions that don't disclose. Let's see, what do you suppose might happen when Washington makes life a living hell for every foreign bank that dares do business with Americans?

Shocker: "Banks no longer want American clients." So if you are one of the estimated 6.6 million Americans living abroad, you can forget about opening or even maintaining that bank account. Sorry! Those 150 minutes of federal spending won't pay for themselves!

And of course it gets worse: U.S.-based companies are discovering to their horror that foreign talent, no matter how executive, is getting caught up in Washington's greed. Expatriates from Switzerland—a country whose remarkable financial sector was built on the notion of banking secrecy—are getting their accounts closed by FATCA-spooked banks back home.

3. Occupational Licensing Abuse

Speaking of your friendly neighborhood tax professionals, the IRS has found a new way to to harass them as well. Last year the agency introduced an arbitrary new set of occupational licensing requirements that force tax preparers to pay a host of new fees, pass a government exam, and sit still through 15 hours of classes every year. It's worth remembering that Congress already heavily regulates the tax preparing industry to prevent fraud and other crimes, but this is the first time tax preparers have been required to get the government's permission before they could set up shop in the first place.

The Institute for Justice, a public interest law firm, recently challenged the new rules in federal court. But in the meantime, independent operators and other small-scale entrepreneurs (and their customers) face the burden of sometimes crippling compliance costs. Their bigger, more established competitors, on the other hand, stand ready to reap the state-sanctioned benefits. As The Wall Street Journal reported, "Cheering the new regulations are big tax preparers like H&R Block, who are only too happy to see the feds swoop in to put their mom-and-pop seasonal competitors out of business."

2. Seizing Passports

The United States Senate on March 14th passed a transportation funding bill that contained a slipped-in section authorizing the "denial, revocation, or limitation of a passport" for anyone with "a seriously delinquent tax debt in an amount in excess of $50,000."

The "revocation" bit is especially heinous: Even the outrageous and barely-known State Department provision denying passports to those who owe $2,500 in back child support only deals with issuances and renewals. Now the feds are apparently willing to actively hunt you down and take away your getaway card.

(Article continues below video.)

1. Wasting Your Time and Money

The tax code is now 3.8 million words long, according to The Tax Foundation. "Over the last ten years," the organization claims, "there have been about 4,428 changes to the tax code, or more than one a day, including about 579 changes in 2010 alone."

The results of that complexity are not surprising: Some 7.64 billion hours of paperwork, according to government statistics cited by the National Taxpayers Union one year ago. "This massive time expenditure adds up to a whopping $227.1 billion, when calculated with the most recently reported average employer cost for civilian workers by the Bureau of Labor Statistics: $29.72 per hour," the NTU wrote.

As Reason Senior Editor Jacob Sullum recently put it,

Yet in the same speech where [President Barack] Obama condemned the "loopholes and shelters" that rich people use to avoid paying their "fair share," he promoted policies that compound the complexity, including special breaks for college students, "companies that hire vets," "small businesses," "high-tech" manufacturers, "clean energy," energy-conserving building improvements, and "companies that choose to stay here and hire here in America." This insistence on using taxes for economic meddling and social engineering has made the system the hideous mess it is today.

The fever dream of central planners everywhere is that the only obstacle to a perfectly balanced budget is insufficient citizen compliance. As we ready our annual humiliation, it's worth remembering that Uncle Sam's desperation for cash, which has already encroached too far on our freedoms, may have only just begun.  

Matt Welch is editor in chief of Reason and co-author (with Nick Gillespie) of "The Declaration of Independents: How Libertarian Politics Can Fix What's Wrong with America" (PublicAffairs).

NEXT: Johnny Cash: "Them are the facts/After tax."

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. If you’re going to whore your articles for clicks, at least give us a nice slideshow with funny pictures like everyone else does.

  2. What’s with the dearth of alt-text?
    And you forgot to pimp your book.
    Pimp it, yo! It ain’t gonna pimp itself.

  3. Reminder to those wondering why you get until tomorrow night to file your taxes: Reparations Day (aka, Emancipation Day) in DC. On this day in 1862, Honest Abe signed the law granting both emancipation and reparations for slavery.

    1. Ironic that we get to fork over a bunch of the hard-earned fruits of our labor to the government under threat of imprisonment on “emancipation day”.

    2. Well sure as hell not because of Patriots Day and our successful tax rebellion.

    3. Specifically, it freed slaves in DC, not nationwide.

      1. True dat! It was a little late for South Carolina.

    4. “I will say then that I am not, nor ever have been in favor of bringing about in anyway the social and political equality of the white and black races – that I am not nor ever have been in favor of making voters or jurors of negroes, nor of qualifying them to hold office, nor to intermarry with white people; and I will say in addition to this that there is a physical difference between the white and black races which I believe will forever forbid the two races living together on terms of social and political equality. And inasmuch as they cannot so live, while they do remain together there must be the position of superior and inferior, and I as much as any other man am in favor of having the superior position assigned to the white race. I say upon this occasion I do not perceive that because the white man is to have the superior position the negro should be denied everything.”

      Abraham Lincoln.

      It’s amazing how the textbooks never quote this from him while making him out to be one of the best presidents in history.

      OT: I’ve found that you can become fairly educated in a public school by doing almost exactly the opposite of whatever they taught you.

      1. They don’t quote it because it ruins the narrative they use to rally the next generation behind the big-government banner.

  4. Good luck figuring out form TD 90-22.1, by the way. My tax professional (who charged me more than $1,000 for her services, though it was worth every penny), shrugged, and gave me a yellow highlighter so that maybe I could shed light on the relevant verbiage of TD 90-22.1

    Good lord! If your high dollar tax professional is perplexed by the FBAR (AKA TD 90-22.1), you need to seriously think about replacing her. I’ve been filing those things for years – and filling them out myself. Takes all of five minutes. (Which is not to say that I like the idea of having to do so.)

    1. It probably takes all of five mintues because you’ve been filing those for years. How long did it take you to figure it out the very first time you saw it (including time spent compiling relevant information and double-checking everything)?

      1. Ten minutes.

        1. OK, then, you’re either at the ‘genius’ end of the tax preparer bell curve or you have a very cavalier attitude towards tax filing. For the rest of us, new tax forms tend to induce a great deal of anxiety and confusion.

          1. Bullshit – I am neither. The problem is here is that you don’t know what you’re talking about.
            Name, address, etc. Name, address and country of bank, acct number, max value of acct for year, signature. *That’s it*. Don’t believe me? – look at the form.

            1. I fill out the same form every year using Turbitax, and TurboTax screws it up every year. I have to go in and check each field to see that they are correctly entered, and then print it out separately from the return. Takes about 15 minutes for ONE account, in France.

              I am waiting to get a letter from my French bank that they don’t want me any more. That would make it IMPOSSIBLE to live here, because a bank account is so important to just exist. If you bounce a check here, the French national bank revokes your banking priveleges for a year, which is an extremely nasty penalty.

              It would also be IMPOSSIBLE for me to sell my house and move back to the US without a bank account.

            2. I fill out the same form every year using Turbitax, and TurboTax screws it up every year. I have to go in and check each field to see that they are correctly entered, and then print it out separately from the return. Takes about 15 minutes for ONE account, in France.

              I am waiting to get a letter from my French bank that they don’t want me any more. That would make it IMPOSSIBLE to live here, because a bank account is so important to just exist. If you bounce a check here, the French national bank revokes your banking priveleges for a year, which is an extremely nasty penalty.

              It would also be IMPOSSIBLE for me to sell my house and move back to the US without a bank account.

              1. Are you kididng me? Bounce a check and no account for a year? Maybe the French aren’t such wimps after all: our regulators expect, one suspects, that U.S. banks pay depositors for the privilege of bouncing checks!

            3. The estimated average burden associated with this collection of information is 75 minutes per respondent or record keeper, depending on individual
              circumstances. Comments regarding the accuracy of this burden estimate, and suggestions for reducing the burden should be directed to the Internal
              Revenue Service, Bank Secrecy Act Policy, 5000 Ellin Road C-3-242, Lanham MD 20706.

              I hope you notified the IRS that they are way off on their estimate.

              But you didn’t actually post a link to this simple form.

              You can read the form, check the various definitions and citations to make sure you correctly understand the form *and* fill in the form itself in 5 minutes?

              Quick, what does “An officer or employee of an entity that has a class of equity securities registered (or American depository receipts in respect of equity securities registered) under section 12(g) of the Securities Exchange Act is not required to report signature authority over a foreign financial account of such entity” mean and how does it potentially apply to you? (I won’t even ask you to look at section 12(g) of the Securities Exchange Act and explain “any security that is otherwise registered pursuant to this section, or that would be required to be so registered except for the exemption from registration provided in subparagraph (B) or (G) of subsection (g)(2) of this section, subject to subparagraph (E) of this paragraph” to me.)

              1. It takes me five minutes to fill out the form that I know I am required to fill out, as I stated. How long it might take you to figure whether or not you are likewise required – that which you are going on about – is quite another matter.

  5. I just copy off my last year’s returns with maybe a few dollars’ difference here or there. No red flags from this chap!

  6. Before any other reforms, we need to get in enshrined in law that if the IRS fills out your taxes, then they don’t get to audit them later unless they can prove that you gave them bad information. They don’t get to play “Gotcha” on decisions they made.

    I ain’t holding my breath.

    1. Why don’t you just fantasize the repeal of the 16th Amendment?

  7. bring in an extra $8 billion in receipts over the next 10 years, or less than $1 billion per year. This for a federal government that spends $1 billion every two and a half hours.

    Hey, that’s 20 hours worth of spending over the next decade that we won’t have to borrow to fund. Why borrow the money when they can just steal it?

  8. Without question, in my mind at least, the federal government has become a ravenous monster that preys on the american people. When the time comes to kill it, and that time is coming, it will begin not with guns in the street, but with americans refusing to pay taxes.

    1. No it won’t. It will come when people refuse to purchase federal debt. When this happens the Fed will buy it, and the rapidly increasing money supply will result in hyperinflation. At some point the government will collapse because the currency will be worthless.
      Then an officially socialist government will arise from the rubble, and the experiment in liberty will be officially over.

      1. Fucking hell, between you and Dean my hopes are always crushed.

        However, note that when the socialist system collapses (inevitable), we can start over with capitalism again.

        1. Most of the people who are ‘fire arms averse’ are the ones with the socialist leanings. Mao said power stems from the barrel of something … what was that? Can’t remember. I think anon’s alternate outcome is the more likely, unless the Military steps in.

          1. Well, to be fair, I’m very firearms-averse when one’s pointed at me.

      2. Yeah, sarc, that’s pretty much the way I see it.

        Maybe a 1 in 10 chance that what rises from the rubble won’t be centralized authoritarianism.

        1. History sez: yes, liberty is just a faint glimmer versus the tide of oppression.

    2. How exactly would people “refuse to pay taxes” anyway?

      Do you mean people en mass changing their withholding to 16 or something?

      1. Shit, I have mine at 10.

    3. LOL – I remember exactly where I was when the news broke that a massive bomb blast had just ripped through a federal office building in Oklahoma City. My brother and I were standing in the maintenance office at a college and, I shit you not, our immediate reaction was to look at each other and simultaneously say “Sure hope that was an IRS office”.

      Oh, you should have seen the outrage – the secretary actually started crying – to our callousness at even thinking about joking about such a horrible thing. My brother and I had to slink off somewhere where we could privately ask each other “What the fuck is wrong with these people that they thought we were joking?”

      That’s how likely it is you are ever going to see any attempt to kill the monster – it’s a joke.

      1. Yah, what is needed is another OKC every day…for a few weeks. Then there will be some changes. When fascists and slavers are afraid to go to work, the monster will die.

  9. “Over the last ten years there have been about 4,428 changes to the tax code, or more than one a day, including about 579 changes in 2010 alone.”

    This alone is sufficient reason to vote out every incumbent.

    1. But then WHO WILL PROTECT TEH CHILDRUZ!?!?!?!?!??

  10. Sounds like a pretty good way to prepare for the

    “CONFISCATION OF THE PROPERTY OF ALL EMIGRANTS AND REBELS.”

  11. The tax code is a subsidy to CPAs and software companies”…..

  12. I’ma gonna print that Cash poster out and put it in my back car window.

    Maybe, if I’m lucky, I’ll catch some Team Bluetard trying to vandalize my ride, give the cops something meaningful to do… maybe shoot their dog, even.

  13. so many people will be thankful with your talking i’m dealing with many of these issues as well saved to bookmarks

  14. this article just what i was looking for a cool post there mate good info

  15. where can i find out more? saved as a favorite very good submit

  16. really looking forward to read more thanks for finally talking about this i find it amazing that you give this information for free

  17. thanks a lot for the blog great articles i have read fully article

  18. enjoyed every bit of your post just what i was searching for keep this going please

  19. truly amazing i liked it it helped me very much

  20. stick with it information seems overwhelming good info

  21. very good submit liked your article post i belive your content is high quality

  22. Great stuff you’ve compiled here. This is excellent writing from you. I really had a good time reading this fantastic article. Everything here is just top notch, mate. I hope you’ll continue to give more stuff like this.

  23. Nice discussion here, you are doing a great job. i was looking for this information. i found it on your page it’s really amazing.

Please to post comments

Comments are closed.