A recent report from the Treasury Inspector General for Tax Administration (TIGTA) found that nearly half of their absurdly small sample size of closed cases were improperly transcribed, and the review itself suffered from several fatal flaws. Despite this, TIGTA has declared the 2009 Offshore Voluntary Disclosure Initiative (OVDI) a success.
In the report, TIGTA admits that it only looked at 60 cases (out of about 18,000), and that in 28 of the cases, “information from the taxpayers’ financial accounts either was not captured or was incorrectly transcribed on the data collection system used for current and subsequent data mining efforts.”
But this extremely small sample size isn’t the greatest problem to plague the TIGTA report. Even more egregious is that the report fails to define the criteria used to evaluate OVDI, and did not define the use of the term “effective.”
Are the right people coming forward?
The OVDI program was intended to bring in “high rolling” tax cheats, residents of the US who have been funnelling money out of the country and into “offshore” tax shelters. The report fails to indicate how many of the 60 cases reviewed actually fit this target profile.
At the very least, it ought to distinguish between US residents and expats, as the latter have a perfectly valid reason to have “offshore” bank accounts.
If the goal is to determine the effectiveness of the program, the first question is whether OVDI is even catching the right sort of people. This is not addressed in the TIGTA report.
The TIGTA report does not distinguish between back taxes collected and penalties levied in cases of simple failure to file (with no taxes owing). If most of the revenue is from one-off penalties rather than a reoccurring tax stream, is the program really effective?
The goal of OVDI was to bring tax payers back “into the fold.” If the revenue is from one-time penalties, that goal is not being accomplished.
Cost vs benefit
Any legitimate assessment of effectiveness ought to take into account the ratio of cost to benefit, and yet the TIGTA report addresses neither.
By some accounts, it can take up to two years to review a single OVDI case – and, indeed, only 60 out of 18,000 were closed and available for review by TIGTA. Given that each case is given a full audit, and assuming that at least some of cases are low-yield “minnows,” can the IRS’s limited resources truly be said to be used effectively? Is a full audit in all cases of voluntary disclosure even necessary?
Further, a good cost/benefit analysis ought to take into account the costs of the many unintended consequences that are now coming to light, such as the loss of foreign investment.
Despite TIGTA’s claim that the OVDI program was “effective,” the report fails to define what that means and how the program was reviewed. The report acknowledges many flaws in the internal processing of disclosures, but fails to consider the many external issues.