CNN: IRS Top Cop Says the Agency Is Too Hard on Offshore Tax Dodgers, by Lynnley Browning:
[T]he harshness -- and, at times, unevenness -- of the IRS in pursuing offshore tax dodgers has an official critic: the ombudsman of the agency.
The Congressionally appointed watchdog, Nina E. Olson, unleashed a fresh critique Thursday of the IRS's amnesty programs for Americans with undeclared offshore bank accounts. The unmistakable message from Olson, also known as the national taxpayer advocate: Many Americans get screwed over financially by entering the programs.
"The IRS Offshore Voluntary Disclosure Program Disproportionately Burdens Those Who Make Honest Mistakes," the report says. ...
Olson's report found that for the 2009 program, launched after a landmark crackdown on Swiss bank giant UBS AG for enabling wealthy Americans to dodge taxes through hidden private accounts, the average taxpayer ended up paying penalties averaging nearly four times, or 386%, of the basic tax owed.
Less wealthy taxpayers fared even worse. Olson found that the bottom 10% of those who entered the 2009 program, as measured by an average account balance of $44,885, got hit with penalties equal to nearly six times the amount of tax owed. Taxpayers wending their way through the program without legal representation got hosed even more, paying penalties of eight times. By contrast, the largest tax dodgers got socked with penalties equal to three times their unreported tax bills -- perhaps a sign of good lawyering affordable by the wealthy.
"The penalties are extraordinarily high as compared with most other penalties the IRS administers," Olson's report says.
Olson also found new evidence of another trend: Entering an amnesty program but then dropping out in exchange for being audited is a better deal, financially. Such taxpayers ended up paying on average penalties totaling only 70% of the unpaid taxes and interest -- hefty, but far less than nearly 600%.