Friday, February 13, 2009

An open letter to President Barack Obama on the Tax Gap in the USA

This is letter addressed to the new President bringing his attention to America's large Tax Gap, and what to do about it.

Dear Mr President,

Firstly, my sincere congratulations on your election to the position of the most powerful leader in the First World.
I believe you will do justice to your position, and be the catalyst for many changes that this country must face.

I write to you about one of those challenges.

It relates to a suggested solution to the major deficit the Federal government has as a result of the current $ 8,7 trillion debt, and added to this the fact that the Federal Government has spent the approximate $ 50 trillion owing to the baby boomer generation now retiring (being social security and health benefits). The total $ 58 trillion estimated debt makes up close to 70% of the nations GDP.

The USA has only been in a worse position once, and that is at the close of the 2nd World War when the total deficit was about 120% of GDP. The world was very different then, and the USA embarked on major expansions in their economy, both internally and internationally. The USA was a surplus exporter. The position, as you know is different today. America is a net importer as the consumers of the nation continue to incur more debt to fund their consumption driven lifestyles. To change this culture will take something close to a miracle, and to simply rely on this fact, in my personal view would be a mistake.

One solution area lies with the current tax system that is operating and functioning in the Federal Government.

The current annual TAX GAP in the USA is at approximately $ 350 bn per year! That is an astounding figure when you consider this is tax actually due to the Federal Government, that is collectible, but that is not actually collected because the tax system is not developed enough! For a country that can monitor the activities of subversives the other side of the world, this seems amazing. The Federal Government is walking away from $ 350 bn in taxes that is actually payable. That translates to approximately $ 3,5 trillion in the next ten years.

To collect this $ 3,5 trillion in the next 10 years will make a big difference to the outcome of your administration.

It will require some careful strategies, and that is where I come in. Before I go further, the following part is not to promote the book that I write of, but to offer you and your administration initially my knowledge and expertise, at no cost, to assist with a solution - as a contribution to this great nation. My abilities and contribution can then be judged and the appropriate equitable arrangement can be made into the future.

I have recently published a short book on Tax Risk Management for taxpayers. It is published by Lexis Nexis. Details of my background as International Tax Attorney and the book are available on my website

I am more that happy to send you a pdf copy at no cost. I can also arrange to send you printed copies at no charge. The book deals with the process that corporations should follow to co-operate with the IRS, so as to ensure they pay all taxes due, and co-operate withthe IRS, to ensure a smoother tax process into the future where they are in for no surprises. The IRS is currently running a test program with about 70 corporations applying the principles set out in my book.

These principles, if properly applied throughout the USA to large corporations, and importantly, to small ones as well, will change the approach of Americans to tax, and it will contribute greatly to collecting that $ 350bn tax gap.
The strategy must start with the advisors of these businesses, and the advisors of individual taxpayers, to change teir mindset, to voluntarily pay what is actually due. To make sure they calculate what is properly due, and pay it - in the face of now dealing with a more reasonable IRS who can focus their money and efforts chasing down the big tax evaders.

This email can only give you some information. As I have offered, I am happy to share my full strategy with you and your administration, if you decide so.

All the best Mr President Elect.

Warm regards,

Daniel Erasmus

OECD influenced countries standardize their systems: Are you adapting your tax risk management systems in line with these developments?

The OECD Tax Administration division, under the chairmanship of South African Tax Commissioner, Pravin Gordhan, has recently released an OECD report investigating the overlap of various tax administration systems in 43 countries, and the similarities are remarkable. What does this mean to Taxpayers?

The obvious advantge is that you can expect similar treatment in the 43 countries in the approach of tax administrators to verification audits and the follow up tax administration review procedures: both areas being the source of significant tax risk especially to large taxpayers in those countries. A recent review of 15 of those countries delivered a completed verification audit exposure only to large taxpayers of some $ 41 bn!! That is significant.

Special processes should be implemented to manage the interaction with tax administrations, especially for large multi-national taxpayers. If you are interested in our blueprint, email .

For more information, visit the website of the OECD and download the report.

Being an Expat in 2009 - A Financial Primer

Extract from an article by Kate James

To believe the surveys, half the world is either already an expat, or planning to become one. Tens of millions of people work abroad, or have retired there, or have property in a foreign country.

Extract follows -

In this month's LTX focus we take a fresh look at Beign An Expat In 2009 - A Financial Primer.

To believe the surveys, half the world is either already an expat, or planning to become one. Tens of millions of people work abroad, or have retired there, or have property in a foreign country.

Once upon a time, perhaps in the days of the British Raj, expatriates had a financially golden life style in recompense for the perceived horrors of a foreign posting involving endless travel, unpleasant insects and unpronounceable but deadly diseases. Once you had shaken the dust of London or Paris or Philadelphia from your feet, you could forget all about tax inspectors and set about hiring an extensive staff of punkah-wallahs and major-domos to run your immense colonial villa while you drank gin and tonic on the verandah (against malaria, of course).

After your 30 years in the sunshine, with wrinkled skin and full pockets, you could retire to a small country house in the Home Counties, New England or Normandy, to swap travellers' tales with your neighbours.

The reality nowadays is both more mundane and more challenging. Over-crowded airports, intrusive tax inspectors, the Internet and hyper-active investment advisers are just some of the features that are combining to form a new and very different landscape for expats.

But at least today's expat is not short of advice from the banks which offer international financial services.

HSBC Bank International has now completed an ambitious project to conduct the largest ever survey of expats. The bank says that its report, the third and final study in its 'Expat Explorer' survey, is the largest ever independent survey of expatriates, questioning 2,155 expats across four continents. The report examines the integration challenges faced by expats relocating to a new country by looking at the cultural and social differences experienced. The report shows that Germany, Canada and Spain are perceived to be the easiest countries to settle in.

Martin Spurling, Chief Executive Officer for HSBC Bank International and Head of HSBC Global Offshore, said: “We commissioned this independent survey to take a look into the lives and experiences of our customers who live across the globe and the transitional challenges they encounter from country to country.”

He added: “This final report in our Expat Explorer series focuses on something that is incredibly important to all expats – their ability to fit in to their new home. This is often the aspect that is most daunting, with many concerned about whether or not they will be able to make friends or feel like they belong in their adopted country. Through this survey we have been provided with a fascinating insight into our customers’ lives which will help us also to best adapt to their offshore finance needs.”

You can read the rest of the feature here:

Tax authorities are doing more focused audits

Extracts from the latest E & Y tax risk report

Companies are looking to work more effectively with tax authorities, especially with increased global enforcement and information exchange across geographies. The OECD's proposals for enhanced relationships with large companies underscores the trend. Companies, boards of directors, independent auditors and other stakeholders are holding tax professionals accountable to identify and address risk issues in an effort to identify and address potential controversy.

Another area where tax executives have noticed a change since 2006 is in the increased sophistication of many global tax authorities. In the UK, the UK tax authority is focusing much more resource on high-risk companies particularly those that have undertaken significant amount of tax planning combined with having processes and systems that are not robust. Companies will need to be prepared for undertaking ward at readiness and documentation reviews and more generally undertaking risk, process and control reviews to lower their risk rating to avoid being rated high risk by revenue authorities.

This more targeted approach of investigation is taking place in other jurisdictions around the world as well.

2008 Ernst & Young Tax risk survey: Steady course: uncharted waters

2008 Ernst & Young Tax risk survey: Steady course: uncharted waters Managing tax risk continues to be one of the toughest challenges for tax departments around the world. 541 companies from 18 countries took part in this year’s survey, enabling EY to identify global trends in tax function priorities, time allocation and success measures.

From EY:
Tax risk is everywhere
Our third global tax risk survey finds that companies continue to face increased pressure on the tax function. As a result, tax functions are focused on addressing risks in every major area of the tax lifecycle - planning, provision, compliance and controversy. Improving the tax function is clearly more important than ever, with more than 90% of companies indicating this will be an important area for them over the next two years.

People are a tax risk
87% of respondents identified people issue as an important challenge facing the tax department. Companies are struggling to get enough people to staff their tax department. They are also challenged to train the people they have, with 77% of companies indicating that the lack of skilled resources is a contributing factor to tax risk.

The trend - proactive versus reactive
Today, companies report a significant increase in the time they’re spending identifying, managing, tracking and responding on tax risk. The number of companies who spend at least 20% of their time on tax risk increased over the last two years from 16% to 25%. leading tax functions are responding by becoming more efficient and broadening their response to risk. Building linkages to other parts of the organization is becoming increasingly important.

Communication is key
According to our findings, companies that have regular communications with their board about tax risk are also more likely to report having specific measures in place to address those risks. The difference seems to be that they take a broad approach to tax risk assessment and work to efficiently leverage their people, processes and technology.

We’ve come a long way….but there’s a long way to go
Tax departments continue to face risk, both from within the organization and the external environment. Demands from stakeholders are increasing. global economic uncertainties can be expected to continue. A comprehensive approach to tax risk management will be key to charting a steady course…in uncharted waters.

Download the “2008 Ernst & Young Tax risk survey: Steady course: uncharted waters” (pdf, 2.5mb)

Letter from the Boss to Employees in this hurt Economy

A letter from the Boss: To All My Valued Employees, There have been some rumblings around the office about the future of this company, and more specifically, your job. As you know, the economy has changed for the worse and presents many challenges. However, the good news is this: The economy doesn't pose a threat to your job. What does threaten your job however, is the changing political landscape in this country.

However, let me tell you some little tidbits of fact which might help you decide what is in your best interests.

First, while it is easy to spew rhetoric that casts employers against employees, you have to understand that for every business owner there is a Back Story. This back story is often neglected and overshadowed by what you see and hear. Sure, you see me park my Mercedes outside. You've seen my home at last years Christmas party. I'm sure; all these flashy icons of luxury conjure up some idealized thoughts about
my life.

However, what you don't see is the BACK STORY :

I started this company 28 years ago. At that time, I lived in a 300 square foot studio apartment for 3 years. My entire living apartment was converted into an office so I could put forth 100% effort into building a company, which by the way, would eventually employ you.

My diet consisted of Ramen Pride noodles because every dollar I spent went back into this company. I drove a rusty Toyota Corolla with a defective transmission.

I didn't have time to date. Often times, I stayed home on weekends, while my friends went out drinking and partying. In fact, I was married to my business -- hard work, discipline, and sacrifice.

Meanwhile, my friends got jobs. They worked 40 hours a week and made a modest $50K a year and spent every dime they earned. They drove flashy cars and lived in expensive homes and wore fancy designer clothes.

Instead of hitting the Nordstrom's for the latest hot fashion item, I was trolling through the discount store extracting any clothing item that didn't look like it was birthed in the 70's. My friends refinanced their mortgages and lived a life of luxury. I, however, did not. I put my time, my money, and my life into a business with a vision that eventually, some day, I too, will be able to afford these luxuries my friends supposedly had.

So, while you physically arrive at the office at 9am, mentally check in at about noon, and then leave at 5pm, I don't. There is no "off" button for me. When you leave the office, you are done and you have a weekend all to yourself. I unfortunately do not have the freedom. I eat, and breathe this company every minute of the day. There is no rest. There is no weekend.

There is no happy hour. Every day this business is attached to my hip like a 1 year old special-needs child. You, of course, only see the fruits of that garden -- the nice house, the Mercedes, the never realize the Back Story and the sacrifices I've made.

Now, the economy is falling apart and I, the guy that made all the right decisions and saved his money, have to bail-out all the people who didn't. The people that overspent their paychecks suddenly feel entitled to the same luxuries that I earned and sacrificed decades of my life for.

Yes, business ownership has is benefits but the price I've paid is steep and not without wounds.

Unfortunately, the cost of running this business, and employing you, is starting to eclipse the threshold of marginal benefit and let me tell you why:

I am being taxed to death and the government thinks I don't pay enough. I have state taxes. Federal taxes. Property taxes. Sales and use taxes. Payroll taxes. Workers compensation taxes. Unemployment taxes. Taxes on taxes. I have to hire a tax man to manage all these taxes and then guess what? I have to pay taxes for
employing him. Government mandates and regulations and all the accounting that goes with it, now occupy most of my time. On Oct 15th, I wrote a check to the US Treasury for $288,000 for quarterly taxes. You know what my "stimulus" check was? Zero. Nada. Zilch.

The question I have is this: Who is stimulating the economy? Me, the guy who has provided 23 people good paying jobs and serves over 2,200,000 people per year with a flourishing business? Or, the single mother sitting at home pregnant with her fourth child waiting for her next welfare check? Obviously, government feels the latter is the economic stimulus of this country.

The fact is, if I deducted (Read: Stole) 50% of your paycheck you'd quit and you wouldn't work here. I mean, why should you? That's nuts. Who wants to get rewarded only 50% of their hard work? Well, I agree which is why your job is in jeopardy.

Here is what many of you don't understand ... to stimulate the economy you need to stimulate what runs the economy. Had suddenly government mandated to me that I didn't need to pay taxes, guess what? Instead of depositing that $288,000 into the Washington black-hole, I would have spent it, hired more employees, and generated substantial economic growth. My employees would have enjoyed the wealth of that
tax cut in the form of promotions and better salaries. But you can forget it now.

When you have a comatose man on the verge of death, you don't defibrillate and shock his thumb thinking that will bring him back to life, do you? Or, do you defibrillate his heart? Business is at the heart of America and always has been. To restart it, you must stimulate it, not kill it. Suddenly, the power brokers in Washington believe the poor of America are the essential drivers of the American
economic engine. Nothing could be further from the truth and this is the type of change you can keep.

So where am I going with all this?

It's quite simple.

If any new taxes are levied on me, or my company, my reaction will be swift and simple. I fire you. I fire your co-workers. You can then plead with the government to pay for your mortgage, your SUV, and your child's future. Frankly, it isn't my problem any more.

Then, I will close this company down, move to another country, and retire. You see, I'm done.

I'm done with a country that penalizes the productive and gives to the unproductive. My motivation to work and to provide jobs will be destroyed, and with it, will be my citizenship.

So, if you lose your job, it won't be at the hands of the economy; it will be at the hands of a political hurricane that swept through this country, steamrolled the constitution, and will have changed its landscape forever. If that happens, you can find me sitting on a beach, retired, and with no employees to worry about....


#9 on the Amazon Business>>Tax Kindle List - The book "7 Habitual Tax Mistakes"

Daniel's latest book "7 Habitual Tax Mistakes" is rated #9 on the Amazon Kindle Business >> Tax book list, out of more than a total of 97,000 Kindle titles. The Kindle format is available to readers who have purchased the electronic Kindle book reader through Amazon, at A Kindle reader can store literally thousands of books, an entire library, on a device the size of a small novel, can be stored. The book is also available off this website in pdf format, or in hard copy format, if you don't have Kindle. Follow the links to the book.