When government turns predator

The following article appeared first at the American Thinker on April 5, 2011, then at Monty Pelerin’s World.  Monty Pelerin is a retired economist who writes under a pen name.  In March, I approached Monty asking if he would publish under his pen name an article on FBAR.  He agreed and then we co-wrote the article and he kindly gave me no credit because I feared the long arm of the IRS.  Then, Monty submitted it to the American Thinker.  Now that I am out in the open with my IRS concerns, I’ve decided I can reproduce it here.  So I want to thank Monty for his extraordinary help when nearly no one in the mainstream media or even conservative blogs were talking about this injustice which the IRS has afflicted upon millions of Americans.

When government turns predator, by Monty Pelerin

Honest US citizens are being turned into prey by the IRS, the victims a hunt for tax evaders. It is the natural, if lamentable, product of the urge to power our Founders warned us against.

More than two centuries ago, George Washington stated:

Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master.

Over the years, General Washington’s prescience has been demonstrated as government usurped and abused power. The myth that government serves the people should be shattered by now. Increasingly, government behaves as the master, not as the intended servant.

Oppression abounds, but nowhere is the raw abuse of power and coercion more possible and evident than in the Internal Revenue Service. They are the most dangerous member of the government gang. Now they have another tool to bully and expropriate wealth from innocents — US citizens living abroad.

Early in his presidency, Barack Obama pledged to add 800 new IRS agents to punish tax evaders with overseas accounts. In an effort, presumably designed to curtail and punish tax evasion on the part of wealthy Americans, legislation aimed at criminals now threatens the income and savings of the law-abiding.


The Bank Secrecy Act became law in 1970 and implemented the Foreign Bank Accounts Report (FBAR) to monitor money laundering. The FBAR law required that US persons owning or having signing authority over foreign bank accounts report this information to the US Treasury Department. It was not much enforced for the obvious reason that a criminal does not willingly divulge incriminating information. During the first three decades of FBAR, there was widespread ignorance and disregard for the law.

In 2003, the Treasury Department handed over enforcement to the IRS. In 2004 non-willful non-compliance increased to a $10,000 fine per account per annum. Willful non-compliance allows criminal charges, a prison sentence, and fines of $100,000 or 50% of bank account’s contents, whichever is more (see Shepherd, p. 10).

The IRS has implemented two Voluntary Disclosure Programs I (2009) and II (2011), in which they waive criminal charges provided that all back taxes and penalties have been paid, along with an FBAR penalty of 20% (in 2009) or 25% (in 2011) of the account’s highest balance over the last six years. The penalty is lower (12.5%) for balances under $75,000. Persons who were unknowingly US citizens face a 5% penalty (see FAQ 52).

In 2010, Congress passed FATCA (Foreign Account Tax Compliance Act) which forces foreign banks to report on American clients, even if doing so would violate the banking and privacy laws of their country. Implementation of FACTA will be coerced by withholding 30% of US income from banks not in compliance.

The arrogance and brutality of the legislation is apparent. The penalties are severe and disproportionate. Economic blackmail of foreign banks is disgraceful. All of these actions will have repercussions, probably not intended.

US Citizens Abroad

US citizens living abroad must open a foreign bank account because commerce is done in the local currency. All who do are potentially in violation of the FBAR law. Most were unaware of the FBAR requirements; but now that the IRS has rattled its FBAR saber, taxpayers abroad are in a quandary.

Wealthier citizens spend thousands of dollars on accountants and tax lawyers to try to put themselves into compliance with the least financial damage. The average citizen not in compliance has limited options. His choices include:

  1. Do Nothing The IRS doesn’t know about you, so continuing to keep a low profile and ignore the law might be the best route. This option may become impossible once FACTA comes into force.
  2. File FBAR Forms IRS FAQ 17 of the 2011 Voluntary Disclosure Program states that filers who have complied with all taxes and filing requirements except FBAR should not enter the program but simply file the delinquent forms by August 31, 2011 with a letter of explanation. They promise that no penalties will apply to such persons.  But given the severe threats of punishment issued to anyone failing to comply, many wonder whether the IRS will accept the excuse of ignorance of the FBAR requirement.
  3. Enter 2011 Voluntary Disclosure Program:  Some US citizens who entered the 2009 Voluntary Disclosure Program and were otherwise in compliance with US tax laws, found that the IRS intended to apply to them the full 20% penalty (see, e.g., hereand here).
  4. Renounce Citizenship Many US citizens living overseas have lives fully integrated into their new country. They comply with the local tax laws and often possess dual citizenship.  Compliance with US tax laws and FBAR are a nuisance and liability that they may be able to live without.

Renunciation of citizenship is not riskless. Such a decision will set citizens free from future liability, but may subject them to IRS penalties for prior non-compliance. In addition, for covered expatriates, those having two million in assets or $145,000 in average annual tax liability over the last five years, an exit tax is also required.

To appreciate the uncertainty and duress faced by US citizens living abroad, a couple of hypothetical situations are useful. International tax lawyer Phil Hodgen partly inspired the following hypothetical cases:

Hypothetical Case 1:  Jim lives in a foreign country and has dutifully filed a US income tax return each year, but was unaware of FBAR filing retirements. Jim operates eight accounts:  four retirement accounts (which he reported on his annual tax returns), two trading accounts, a checking account and a high interest savings account.  The highest balance in these accounts is $1,000,000 over the last six years. His current balance is $800,000 after the market dip.

Jim doesn’t know what to do. After great worry, he enters the Voluntary Disclosure Program. The IRS assesses Jim a $250,000 FBAR penalty. In order to pay the penalty, Jim must withdraw funds from his retirement accounts forcing an additional tax liability of $100,000 on the income. Jim is no longer able to retire because his $800,000 has been reduced to $450,000, solely as a result of IRS capriciousness.

Hypothetical case 2:  Nancy is a teacher and mother of three, married to a citizen of the foreign country where she has lived for fifteen years.  She dutifully filed her taxes in the US, but never knew about FBAR. A friend entered the Voluntary Disclosure Program and was assessed $14,000. She contemplates the renunciation of American citizen, because her foreign husband owns a successful business and Nancy is a signer on business accounts. She fears exposing her husband’s business to the IRS and also fears that upon her death, the IRS will seek its pound of flesh from her estate. She renounces citizenship, though it breaks her heart.

Abuse Of  the Law

FBAR was initially a harmless and little known embarrassment for the United States. It began as an ineffective attempt to stop money laundering. Like so many other laws (RICO, Homeland Security, etc.), it began with what some believed noble purposes, only to morph into a tyranny imposed upon law-abiding citizens. It is now a tool capable of arbitrary and oppressive expropriation of the wealth of millions of US citizens living abroad.

An insolvent government is a dangerous government. It is akin to a wounded and cornered animal. When conditions become really difficult, it is likely to do anything to survive. Arbitrariness in the interpretation of any law is dangerous to freedom, but especially so when government’s primary concern is survival rather than justice.

There are many reasons to be critical of FBAR. The following two will illustrate:

  1. Excessive fines: Ayn Rand said “The severity of the punishment must match the gravity of the crime.” This basic principle of human rights, enshrined in the Eighth Amendment, forbids excessive fines. It is immoral for the IRS to intimidate innocent citizens. Any law so uncertain that it could result in a loss of 50% of your wealth, depending upon the whims of the IRS, is not a law. It is government-sanctioned extortion.
  2. Guilt Presumed:  The Fourth Amendment protects (or was supposed to) citizens against arbitrary fishing expeditions by government. Probable cause is required. The FBAR requirements circumvent this Fourth Amendment right, in effect saying: “You will volunteer to open the door to your house and let us look inside.  If you don’t, we will fine and/or imprison you.” The IRS demands bank information based on a presumption of guilt even though holding funds in a foreign bank account is no crime.

Unintended Consequences

The term unintended consequences, a convenient euphemism for stupid policy or law, is appropriate. Some of the foreseeable outcomes are the following:

  1. An avalanche of US persons will renounce their citizenship. In July 2010, the State Department implemented a $450 fee for making a renunciation before a consular officer, presumably to exact additional income and possibly (highly unlikely) deter some from making the decision.
  2. Foreign banks and investors may decide doing business with the US is not worth the trouble of compliance with FACTA, particularly as the US economy collapses and the global economy shifts to the East.
  3. US Citizens abroad already find it challenging to open bank accounts both in US and in their countries of residence. This annoyance makes it more difficult for American companies and their employees to engage in foreign missions, business and trade.
  4. US citizens are already shunned from positions in foreign companies which do not want their banking details revealed to the United States Treasury Department.


The Bank Secrecy Act, passed in 1970, is an example of law designed for one purpose being expanded to be used against innocent citizens. Regardless of its good intentions, it is now a tyranny used to extort wealth from otherwise legal, law-abiding US citizens living abroad.

It represents a classic case of how government usurps freedom. What level of morality must government have to think they are entitled to shake-down hard-working citizens?

Monty Pelerin has never lived abroad or had a foreign bank account. He has friends who do and hopes that exposing this State plunder will cause it to cease in this and other parts of our lives.

The heart bleeds: the IRS is downsizing

From Bloomberg:

The agency, which had 94,711 workers in fiscal 2010, plans to accept no more than 1,600 buyout applications. A second round of buyouts could follow. The Obama administration has said that as many as 4,000 IRS jobs could be cut over the next year, including some that would reduce tax enforcement and collections.

Some months ago the IRS was hiring 800 employees to go after corporate cheaters and offshore tax shelters.  I guess the word is that going after innocent Canadians and other Americans Abroad is as lucrative as they thought, and now they have to downsize.  As the Germans say, “Schade” from which we get the word Schadenfreude.

But this was my idea: that the IRS would want to tax the world, but that it would just not bringing enough income chasing people’s fleeing capital, and the mental midgets in Washington would eventually realize that its time to shrink government.  The only other choice is to devalue the dollar, after which no one will want to work for the government in any case, because its currency is worthless.

Perhaps it was premature of me to declare open war with the IRS. Maybe I should have just let them burn themselves out on their own.  My heart bleeds.  My enemy falleth on his own sword.

Pillaging one person at a time: why I’m coming out in the open with my fight against the IRS

Pillaging one person at a time

A few years ago, when the current president of Central African Republic took over via military coup, Chadian rebels, who helped him to power, pillaged the seminary where I taught for eight years as a visiting professor.  Eye witnesses said that nearly everyone shut themselves up in their houses and hid from the rebels, who came and forced each house to open up by firing their AK47s outside their doors.  Then, the rebels took anything that was of value from each inhabitant.

My friend Bennet said that everyone, in fear, took the completely wrong approach.  Bennet was a Sudanese refugee in the Central African Republic and had worked at the school.  He said that he learned in his military training in Sudan that if someone is hiding from you it is because they have something to hide.  He took the opposite approach and walked up to them and spoke with them in Arabic.  He gave them a tour of the campus, misdirecting them.  When they came to the largest of buildings, full of professors’ computers and other valuables, they asked him, “What is that builiding?”  Bennet responded, “That’s a library.  It has books.  You won’t be interested in that.”  They agreed, as they were all illiterate.  Thus, Bennet spared the school the worst of the damage.  I was meditating about this over night and the next day I asked Bennet the question that was bothering me:  “Weren’t you afraid?”  He said, “No.”  I asked, “Why not?”  He answered, “Because they were not shooting at me.”  A Sudanese refugee who fled in panic the artillery shelling of his hometown through the dense forest separating CAR and Sudan is not easily intimidated by a few light arms pointed at him.

The US persons who are resident in Canada number approximately 1 million.  We are a sufficiently large group that if we stand up boldly together we can make a difference.  But if we cower in fear and hope that the IRS doesn’t notice our houses they will threaten and pillage us one by one.  We Canadians are standing on the moral high ground.  We have conducted our lives in accordance with the laws where we are resident and most of us had no clue what the IRS demanded (the number of non-compliant is in the hundreds of thousands). Their demands are not only unjust but also unconstitutional.  I for one am tired of suffering in silence or using pseudonyms when dealing with this issue.  The fact is that hundreds of people on internet bulletin boards and blogs are using false names.  Well, if they want to know who I am, they can figure it out.  It doesn’t take great hacking skills.

I am coming out in the open.  I have committed no crimes and I am innocent, and I would ask that the IRS and all the other branches of the US government stop treating me like a criminal.  I don’t owe you any taxes, not even according to the rules that you’ve set up.  I’d love to be so rich that I owed you taxes but with the rate of taxation in Canada, it’s going to be long time before that ever happens.  Here I am.  If you want to make an example out of me, then you do so at great risk to your reputation.  Already in this last campaign you have been censured.