As the “will he or won’t he” controversy continues to swirl around demands that Mitt Romney release multiple years of his federal income tax returns, some commentators have speculated that Governor Romney’s reluctance to produce those returns relates to his Swiss bank account. Some have gone so far as to suggest that Governor Romney may have failed to disclose that account on his original returns and cured that deficiency by participating in the 2009 IRS Offshore Voluntary Disclosure Program.
Last Thursday, I discussed this speculation on MSNBC’s The Last Word with Lawrence O’Donnell. On the show, O’Donnell suggested that Governor Romney may have committed a felony by failing to disclose his Swiss account. I view this as unlikely.
To be sure, the failure to disclose a Swiss bank account can constitute a crime. Approximately 65 accountholders have been charged with tax evasion (for failing to report income generated in offshore accounts), filing false returns (for failing to disclose their ownership of offshore accounts on Schedule B of their tax returns), failure to file Reports of Foreign Bank and Financial Accounts or FBARs (for violating reporting requirements in years in which the aggregate balance of their offshore accounts exceeded $10,000), and other offenses.
But not every failure to report an offshore account constitutes criminal conduct. In order to prove criminality, the government would have to show that the taxpayer was aware of his obligation to disclose the account and intentionally failed to do so. In many cases, the government proves this with evidence that the taxpayer deposited untaxed income into the account, concealed his ownership of the account through sham corporations or denied having an offshore account in response to a specific question by his accountant.
In 2009, amidst publicity regarding its enforcement efforts with respect to the Swiss banking giant UBS, the IRS offered the OVDP as a means by which taxpayers who had failed to report offshore accounts could resolve criminal and civil responsibility. As I have written elsewhere, the 2009 OVDP and its successors – the 2011 Offshore Voluntary Disclosure Initiative and the 2012 Offshore Voluntary Disclosure Program – have already generated almost 35,000 disclosures and over $5 billion in taxes, interest and penalties.
Participation in one of the IRS’s offshore voluntary disclosure programs, however, should not be equated with criminal conduct. Rather, because these programs provided both protection from criminal prosecution and a potentially favorable civil penalty structure, even taxpayers whose conduct did not evidence the willfulness necessary to support a criminal prosecution made voluntary disclosures to attain certainty regarding their civil exposure.
While some have speculated that Governor Romney may have participated in the 2009 OVDP to cure a historical failure to disclose his Swiss account, this too is doubtful. Governor Romney’s refusal to release his tax returns dates back to the 2002 Massachusetts gubernatorial election, long before the IRS’s recent focus on offshore accounts. Moreover, because the 2009 OVDP closed on October 15, 2009, if Governor Romney had participated in that program, his 2009 return (and likely also his 2008 return) would not evidence his participation in the OVDP, and thus could be released without raising any questions regarding his compliance with his offshore account disclosure obligations. Finally, accepting Governor Romney’s insistence that he has paid “all the taxes that are legally required and not a dollar more” as a representation that he reported all of his income on a timely basis, under the FAQs issued by the IRS, Governor Romney could have cured any failure to disclose the account on a timely basis without participating in the 2009 OVDP.
Under the circumstances, it is more likely that Governor Romney’s decision not to disclose additional returns reflects an assessment that the effective rate that he lawfully paid in some years may be a political liability. Unfortunately, the lack of transparency will continue to give rise to speculation regarding what is (or is not) in Governor Romney’s tax returns, and will allow politicians and commentators to imply all sorts of misconduct.