Published reports reveal that a record number of U.S. taxpayers have renounced their citizenship.
This has been anticipated and expected by many tax practitioners who have been alarmed by the vast number of penalties that the U.S. voluntary tax compliance system now requires.
The fact that an increasing wave of financially successful taxpayers are willing — choosing — to not be a citizen of the United States any longer tells a story far different than that espoused by our current political leadership and their spinmeisters.
Effectively, the tax law is being used as an instrument to grind into dust anyone who would dare to object to having their income and investments being confiscated.
Why the insatiable need for money?
It's how politicians get elected. The tax law is the primary and preferred method to hide cash giveaways and financial rewards for reliable campaign supporters and loyal voting constituencies.
More money is always needed, so Congress found a new supplemental source of cash. It has created a regime that has impossible compliance burdens and then charges penalties for the resultant failures.
It is one thing for a taxpayer to attempt to deal with the imposition of income tax itself. It is quite another to risk even larger losses due to penalties that could be imposed by a growing maze of tax compliance procedures and form filing requirements.
How crazy has the U.S. tax compliance system gotten?
In one recent case, a U.S. taxpayer failed to timely report a foreign account and pay tax on the earnings. He filed amended returns and paid up.
But the Treasury was not satisfied. It is taking the position that the taxpayer did not properly file the approved disclosure forms.
If he had complied with the requirements, then he would still be required to file amended returns and pay taxes and penalties.
Under the Treasury's interpretation of the penalty provisions, it assessed 50 percent penalties on the total amount of the money in the previously unreported account for each year the correct compliance disclosure form was not filed. Four years at 50 percent equals 200 percent.
As a result, the Treasury asserts the taxpayer owes $3.48 million on an account that never had more than $1.5 million in it.
The 200 percent penalty assessed is a penalty for failing to file the required form —not for the failure to pay tax.
Is this tax compliance enforcement on steroids?
Is this a violation of the Eighth Amendment — prohibition against excessive fines?
Each taxpayer will have to determine for themselves the answers to those subjective questions.
What is, however, merely a matter of mathematics is the fact that U.S. taxpayers are choosing in records numbers to give up their U.S. citizenship.
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