The more money you have, the more likely you are to cheat on your taxes. The rich have more opportunities to try to hide assets and income from the Internal Revenue Service, particularly through offshore bank accounts. In the United States, banks are required to report income earned by their customers on savings and investments. Many taxpayers are familiar with the 1099-INT and 1099-DIV forms for interest earned and dividends respectively. The I.R.S. can somewhat easily match the 1099 forms provided by banks with the 1040 income tax return forms filed by taxpayers to find discrepancies.
Banks located outside the United States, depending on their local laws, may not be required to provide this information fully to the United States government. Thus, the I.R.S. might not know if a taxpayer is earning money in an offshore account, making it easy to “forget” to include that income when filing taxes. Of course, this is fraud, and a bad idea.
The government is getting better at convincing banks located in tax havens to comply with I.R.S. requests for information about customers who happen to be taxpaying citizens of the United States. UBS, the largest bank in Switzerland, has ended its offshore “secret” banking service in Switzerland as a result of a settlement of a federal investigation. And this year, the I.R.S. is requiring certain taxpayers to file a new tax form, Form 8938, disclosing offshore assets and income.
Here are the certain taxpayers who must file this form:
Unmarried taxpayers or married taxpayers filing separately living in the United States whose total offshore assets at the end of the year total at least $50,000 or whose offshore assets exceeded $75,000 any time during the year. Married taxpayers filing jointly living in the United States have thresholds that are double the amounts for unmarried taxpayers.
Taxpayers living abroad whose total offshore assets at the end of the year total at least $200,000 or whose offshore assets exceeded $300,000 any time during the year.
Taxpayers who are otherwise not required to file an income tax return are not required to complete this form, either. The guidelines for determining who must file Form 8938 and which assets to report can be a bit complicated, so it’s best to read the rules from the I.R.S. and speak to an accountant familiar with the new law for advice.
The penalties for incorrect information of Form 8938 are steep, and even small errors can result in significant fines. Failure to file the form when required to do so can result in a penalty of $10,000, and if you continue to ignore requests from the I.R.S. to file, the penalty can reach $50,000. Even if you live offshore and your country has a law preventing you from disclosing your financial information to the United States, you can’t avoid the reporting requirement and penalties. If you file the form but underpay your taxes even due to an error on Form 8938, you will be charged a penalty of 40 percent of your underpayment.
If the government can show you committed fraud in underpaying your tax, the penalty will increase from 40 percent to 75 percent of your underpayment. Those penalties are additional to paying what you do owe, according to the I.R.S., plus interest.
The I.R.S. is also threatening criminal penalties for taxpayers who fail to file Form 8938, fail to disclose all offshore assets, or underpay their taxes.
If you look at Form 8938, you will see that reporting requirements for offshore assets and income are different than requirements related domestic bank accounts and investments. In general, you only need to report income from domestic bank accounts and investments, but with offshore accounts, the I.R.S. wants to know the value of your assets, not just your income.
As David Jolly points out in The New York Times, the information you report to the I.R.S. on Form 8938 duplicates a separate reporting requirement. Taxpayers who have more than $10,000 in offshore bank accounts must already file a Report of Foreign Bank and Financial Accounts (FBAR). The FBAR is used by the United States Treasury to identify money laundering and terrorism funding, so the I.R.S. is already receiving some of the information it needs. Form 8938 ties this information to taxpayers’ income tax returns. If the government decides to use the information filed on the FBAR to cross-check the information included on Form 8938, it could potentially identify more income tax evaders.
Bank of America can’t catch a break. A whistleblower, Eileen Foster, brought fraud at Countrywide Financial Corp. to the attention of Countrywide’s Employee Relations Department shortly after Bank of America acquired the company. Bank of America then allegedly fired the whistleblower in retaliation, although the bank claims the termination was due to the employee’s management style, not the fact she led an investigation that uncovered fraud.
The U.S. Department of Labor says Bank of America must reinstate the employee and pay her $930,000 for lost income, interest, damages, and attorney fees.
Countrywide specialized in subprime loans, and the employee’s investigation uncovered wire, mail and bank fraud at the company, as a matter in the course of doing business. Countrywide used predatory lending tactics and falsified loan documents.
As a result of the investigation, six branches of Countrywide in Boston closed. After the closings, Countrywide agreed to pay $3.1 million to Massachusetts and $3 billion in loan modifications. According to the Department of Labor, also as a result of the investigation, Bank of America retaliated by firing Foster.
From the Wall Street Journal:
Countrywide then initiated an investigation into allegations of harassment and misconduct by Foster, the report says. The report says Foster wasn’t initially informed of the investigation but several employees were interviewed for it. One employee who was interviewed went to the general counsel and the chief operating officer of Bank of America to express concern Foster was unfairly targeted, the report says.
An employee told the Department of Labor the investigators asked “leading questions and had a profoundly biased view” of Foster.
Foster was fired in September 2008. An executive said she engaged in “inappropriate and unprofessional conduct with your staff and displaying poor judgment as a leader,” according to an email cited in the government’s report.
Bank of America will repeal the Department of Labor’s decision.
Despite protections for whistleblowers, many who believe they witness unethical activities in an organization may not raise the issue to the appropriate authorities. The culture of an organization plays a larger role in decisions to go against co-workers and superiors than documented protections. Even though retaliation is not permitted, the fear is great enough to keep most people silent. Particularly when the unemployment rate is high, employees are willing to stay silent and keep their jobs. The Department of Labor is charged with ensuring that employees are not afraid to speak out when there is evidence of wrongdoing.
In addition to this issue for employees, consumers should also pay attention. While Countrywide Financial (Bank of America Home Loans) is not the same entity that provides savings accounts and credit cards within Bank of America, it is part of the larger organization. Interest rates and customer service tend to be the biggest drivers for the choice of banks, but the attitude of the larger corporation can legitimately play a role in these decisions, as well.
While Bank of America may not be continuing any possible retaliation, they are appealing the decisions. Of course, this is the only possible course of action because in the end, the company must answer to its shareholders who expect the company to avoid any unnecessary expenses if possible. When shareholders’ priorities are different than customers’ priorities, it may be time to consider alternatives, like credit unions and mutual insurance companies.
The latest big business security breach affected Citigroup and about 1% of the company’s credit card customers. Hackers were able to access the customer database, finding customers’ names, credit card numbers, and email addresses free for the taking. The hackers were not able to gain access to other personal information, like Social Security numbers, card verification numbers, or birth dates. The company has started contacting affected customers.
It’s unlikely that customers whose numbers and names are significantly more susceptible to identity theft as a result of this breach, because Citi kept the more sensitive information secure. It may still be a god idea to change your password if you have online access to a Citi credit card. In cases like these, there is little that customers can do to avoid being included in a data breach short of opting out of the finance industry overall. If you never sign up for a credit card, you prevent hackers from stealing your information. Once you’re in “the system,” you have to rely on banks to protect your information appropriately.
As a result of this breach and the continual development of technology, financial institutions may soon find new regulations that require even stricter security for online access. Some financial institutions now offer options for their customers to authenticate via a SecurID — technology that uses wireless networks to provide a unique code over the air that must be verified before you can access your account. In my role at my former job, I accessed banking institutions on behalf of the company, and every bank required a different wireless device. This could be where the consumer market is heading — and if it is, it’s going to make even more sense to simplify your finances.
Additional information: According to the Wall Street Journal, Citigroup waited up to three weeks after the incident before notifying customers. The delay was due to an investigation into the issue.
Update: Of the 360,000 accounts breached, only 3,400 accounts were subject to fraudulent charges by the hackers. Customers are not responsible for fraudulent charges, though the total loss on Citi’s side due to the fraud is $2.7 million.
Geneen has appeared on national television shows including The Oprah Show, 20/20, and The NBC Nightly News. Geneen is the author of eight books, including The New York Times bestsellers When Food is Love and Women Food and God: An Unexpected Path to Almost Everything.Lost and Found is her newest book, published in March.
Consumerism Commentary Podcast #103
Lost and Found: S04E25 / 126
[00:00] Introduction from Bryan J Busch [00:37] Interview with Geneen Roth
– [00:51] Initial impressions about money
– [03:15] Investing with Bernie Madoff
– [06:38] When it started to seem too good to be true
– [08:17] Avoiding a downward spiral of depression
– [12:29] Enough isn’t a quantity
– [16:30] People spend money the same way they eat
– [20:11] Buying fun things or saving to fill a hole
– [24:38] End
We always welcome feedback from listeners. If you have any comments for this episode or for any other, or if you have suggestions for future episodes, please leave us comments here or email us at podcast at this domain name.
Bryan J Busch: On today’s episode of the Consumerism Commentary Podcast we take a step back and look at the belief systems that influence our behavior with money.
[music]
Bryan: Welcome back to the Consumerism Commentary Podcast. I’m Bryan J Busch. My guest today is Geneen Roth, author of Lost & Found: Unexpected Revelations About Food & Money. Welcome and thank you for joining us on the Consumerism Commentary Podcast.
Geneen: Glad to be here.
Bryan: In my experience, people think there are only two way to act around money; you can either be smart and save what you need to or you can be foolish and not save enough, but from your book I gathered that our money decisions can date back to our very childhoods and that it’s not enough to attach education about saving to our existing beliefs. What’s really going on in our brains when we are making bad decisions?
Geneen: I don’t think it necessarily has to go back to early childhood; although because money was a factor and it was a daily part of life when we were growing up even though a lot of adults can’t remember hearing about money until they got to a certain age, because of course when you’re really young you don’t know what money is.
By the time you figure out what money is, what’s going on in your family with your parents or caretakers and your siblings depending on their particular situation, that is something that you understand. They get that across, so it’s gotten across to you even on a non-verbal level in terms of if there is enough, not enough, if there is a fear around it, if there is a sense of scarcity, whatever the issues are about money you imbibe somehow and those lay down some kind of structure or a blueprint, or a foundation for subsequent money beliefs and decisions that you make.
What I’m saying in Lost & Found is that all the good financial advice in the world is great; except that the problem is that for so many of us there is something that keeps us from following that advice. In my own case, I was told to diversify, diversify, diversify. It didn’t matter how many people told me to do that, I had a particular set of attitudes towards money beliefs about money and myself and that allowed me to block out all the good advice in the world.
Bryan: What were those beliefs that stopped you from diversifying? Just for our audience’s benefit, I’ll let them know that you were forced to examine your relationship and beliefs about money when 30 years of savings got wiped out in the Bernie Madoff Ponzi scheme.
Geneen: Right. I think it would be good to say at this point, because this came up in a book reading I did recently. Somebody stood up and asked me, “Didn’t you need to have millions of dollars in order to invest with Bernie Madoff?” I realized that people have misconceptions about the range of investors that were involved with him.
We had people in our fund that could invest anywhere from $5,000; I think $2,000 was the lowest and then as much as you wanted to up from there. It wasn’t only rich and mega rich people who could invest with Bernie Madoff. Our friend whose father had been involved with Madoff for 30 years felt as if he was doing something kind and generous when he invited his friends into a family fund, which is what we were involved in.
Yes, he and his family had put all their money with Madoff because they had been invested for 30 years and had done quite well, although it seems as if Madoff made a subjective decision about the kinds of returns he gave to whom. People who invested a lot of money with him seemed to have gotten 25%, 50%, 75%, 100% return on their money. When you were invested as a part of a feeder fund; which is what they were called, depending on how much money they had of that fund put in we’re finding out now resulted in the kind of returns you got.
We got about 6% or sometimes 8% on the money and that seemed better to somebody as financially unaware as I was and as financially unaware and unconscious as I really wanted to be, because truthfully, I didn’t really realize this but I didn’t want to think about money.
I wanted it to be easy. I wanted somebody to be able to make decisions for me. It’s much like how people feel about food. Just tell me what, when and how much to eat and I’ll do it. Give me rules to follow and so the people around me, the people in my immediate world, all, it turned out, I didn’t realize this when I first met them, had all invested with Madoff through this particular fund and so I did too.
I didn’t listen to diversify because it would have really meant doing some investigation. I investigated the fund but really investigating into why I didn’t want to diversify and what was it that I wanted to be unconscious about.
Bryan: Was there any point at which you thought, “This seems too good to be true?”
Geneen: Getting 6% didn’t seem too good to be true. The only time it seemed too good, because we’ve got 6% when other people were getting 15% and 20%. When it started feeling like it was too good to be true was when everything started to crash in September and October of 2008, but that’s what Richard had said to us for many years, “The great thing about investing in this fund is when the market is doing great, you don’t get the highs but when the market is not doing great, you don’t get the lows either.”
It seemed a bit too good to be true and that point, we put in our request in to get our money back but it took a couple of months to get the money back and we were slated to get it back on January 1st and of course Madoff confessed on December 11th, a month before.
Yes, and it was devastating. It was terrifying and devastating to hear that we had lost; my husband and I had lost 30 years of life savings and I know many people are experiencing this now to a lesser degree. My husband and I; he likes to say took the express elevator down to the bottom in one fell swoop and many people are going through this kind of discomfort, pain, suffering, fear, terror in smaller or larger amounts now, but we’re all feeling it.
Bryan: Now, you were in a fortunate position or more fortunate than others when it came to experiencing that terror. Could you tell us how you were able to bring yourself back from spending all day being mad?
Geneen: Well, I was no more fortunate than anybody else. What I did, every single person can also do. I thought I was going to go mad. I didn’t see how I was going to live inside my own skin because I had no idea how we were going to survive. I thought there was a chance we would be homeless.
A friend invited us to move in with her; my husband and I and our 60 lbs dog in their 6 x 8 dining room, which of course would have been a pleasure and an amazing gift to have gotten, so I don’t want to put that down at all the fact that somebody was willing to have us move in with her was incredible, but I didn’t know how we were going to live and I realized that the only way to live through that was to focus on what I hadn’t lost, on what I could find on a day-to-day basis in my immediate environment.
It was very simple, concrete things. The kind of things that we take for granted every day; things like being able to take a hot shower, things like being able to drink tea from my favorite blue tea cup with the big red rose on it, things like being able to watch my dog still play, being able to see the hummingbirds flock to the feeder outside the backdoor or to actually take steps to breathe, to have a body, to still have a roof over my head for that moment.
Those were things that were necessities for me to focus on and those are things which most of us take for granted every single day and I hear a lot of people saying to me, “That’s easy for you to say. What about the fact that I’m scrimping and saving?” or somebody wrote to me the other day and said, “What about single mothers who have three children are scraping to get by?”
This is true across the board and the reason it is is because focusing on what you do have instead of what you don’t have allows you to maintain some kind of equilibrium and it allows the brain chemistry; all that work on neuroscience that’s being done right now shows that when you begin focusing on positive things, we’ll call this positive, then your brain chemistry changes.
When your brain chemistry changes, you’re actually able to make more objective decisions about what you can actually do instead of focusing on that old run or fight or flight mechanism that we get into. That’s a case of absolute survival hypervigilance. And in that case, your whole body is geared for a fight and geared for an emergency; but if you have to make decisions that are objective, decisions over the long run, that kind of state of emergency and terror and fear that’s so negative we’re living in right now doesn’t actually help, doesn’t help us have any clarity about our situation and certainly it’s utterly lacking in joy.
Bryan: I learned in the book that our survival instincts; coming from the lizard brain, actually have a direct relationship with things that you wouldn’t except. For instance, let’s say that lately I’ve been wanting to get an iPad 2. I don’t need one and I can’t afford one but I want it anyway. Why would my brain do that to me?
Geneen: First of all, we are living in a consumer culture. We’re living in a culture in which your self-worth is pretty much defined by your net worth, so to speak, or the amount of stuff you have. It’s very difficult. It takes awareness to disengage from that. If you think you’ve got to have one for what? The question is, what do you believe would happen if you had one?
We associate happiness or a feeling of sufficiency with a quantity or a thing and really, it turns out that it comes down to is that enough isn’t quantity. It’s not in anything you can touch or buy or have. It’s really a relationship to what you already have.
If you made a list of the ten happiest people you knew, it probably wouldn’t be the ten richest people you knew. In fact, financial advisors across the board have told me when I interviewed them for Lost & Found, my book, that no matter what somebody had, no matter how much money somebody had, when they ask their clients what they would need to feel safe, comfortable, relaxed, happy, it was invariably twice as much as they already had.
And then, when they got to that twice as much mark for those fortunate, for those financially fortunate ones who did; and they were asked the same question again. They wanted twice as much.
I think it’s important to know off the bat that once you got the iPad, it would be something else. It’s not the iPad. It’s not the money. It’s not an amount. It’s not the thing itself, and I think that is so hard to get. It’s so hard to understand. It’s so hard to believe, but anybody who’s had what I call in Lost & Found a deathbed moment, a crisis moment and I’ve had a lot of them; I had a medical test a couple of years ago and I almost died. In fact, I did die for about two minutes and when I came back I couldn’t believe how fortunate I was. I lost all of money, I was in a car accident a couple of years ago where I ended up in a wheel chair. I’ve had disasters.
I’ve of course written about my relationship with food in Women, Food & God forever about how I gained and lost 1000 lbs and how I was anorexic and then hugely overweight, so I’ve really taken it to the extremes in terms of my life and have gone to the extremes because of situations I’ve been in, and in each of those crisis moments; those deathbed moments or crisis moments, I’m aware of what’s really, really important and yet, which is right here right now, what do I see? What do I have? What does my life depend on? And yet, it is so easy to forget and just to want that iPad and believe your life would be good if you had iPad.
Bryan: You talk in the book about stealing pleasure. What does that mean?
Geneen: Some of the chapters in the book have to do with our relationships with food and money because I’ve always said in my work with food that people live the way they eat; that if you really want to know what a person believes about life, about scarcity and deprivation and joy and pleasure, happiness, what they are allowed to have or not allowed to have, whether they’ve given up on themselves or not given up on themselves, all you have to do is look at the food on their plate.
What I now understand; which I didn’t get before, even though I’ve studied the relationship with food and my students’ relationships with food for 30 years, I didn’t understand that people also spend the way they live or spend the way they eat, but our relationships with food and money are almost exactly the same. This was staggering to me to discover, staggering to me to see that in the same way that we diet and binge or some of us do, we also are strict with money and then splurge, or we rationalize about food; broken cookies don’t count because when the cookies break the calories break or anything eaten with a diet soda doesn’t count because it cancels out the calories; same thing we do with money.
If I can amortize it over 20 years and it only costs me two cents a day; well then, how could I afford not to buy it? Or if it’s on sale, I can’t afford not to buy it. Those are some of the patterns and the feeling of never having enough food, the stuff that we really, really like to eat or money.
One of the patterns I see with food and money is that we feel like we don’t deserve to have it. If we’re overweight, we don’t really deserve to enjoy food so we better eat salad without dressing and dry toast in front of other people, and then steal pleasure while nobody is looking and I think the same is true with money.
We have this set of beliefs about money; unconscious beliefs for the most part, we want it, we want it, we want it. We can’t have enough of it, we don’t have enough of it, we believe our life would be better if we have it and yet, many of us without knowing that we believe this, believe that money is sleazy or dirty or it’s the root of all evil or responsible for all that’s wrong and we don’t want to be like one of the bad guys who rip people off and slice and dice up those crazy mortgages where people ended up losing their houses because they signed on for it, things like that.
And so, because we have this money split we end up feeling like we’re not supposed to have but we really want it and if we want it, I call it stealing it. We have to get it behind our own backs and that’s where all the subversive behavior around money comes.
Lots of women tell me, for instance, they go shopping but they run into the house and put all the stuff under their beds before their partners get home and it’s not that they couldn’t tell the truth; it’s just that there is this whole subversive game, this belief that if we’re going to give it to ourselves and we feel like we’re not supposed to, we’re going to have to steal it in some way which means eating and/or buying it behind our own backs and behind the people we live with backs.
Bryan: You mentioned earlier that enough isn’t a quantity; meaning, I’ll never have a number where I can look and say that’s enough, so there is a hole somewhere in my soul, so to speak, that I try to fill with saving or with buying gadgets and I have to accept that that’s never going to work? What will work instead?
Geneen: I think that’s a really good question and I think the first thing to understand, even before we get there, is to understand that more financial advice isn’t going to help you fill that hole, so to speak. The only thing that’s going to help is to actually address what’s going on, because financial advice is like when you’re not actually addressing what’s actually going on, it’s like I tell my students it’s like putting whip cream on a piece of wood and trying to make it edible. It doesn’t work.
If you don’t want to listen to the advice because you’re trying to fill something that you desperately believe needs to be filled and that you feel as responsible for the pain or discomfort or hurt or suffering in your life, then you’re going to get that thing regardless of whether you can afford it or not, or you’re going to keep wanting it whether you can afford it because you believe that if you have it you’re going to be happy. So it’s important to start there, to realize that the reason why we don’t want to follow a lot of this advice is because we’re using money for emotional reasons that we’re not acknowledging or addressing.
As long as you’re doing that all the good advice in the world is not going to be able to work for you, and so the first thing to do is acknowledge it. The second thing to do is to see if you’re feeling empty — let’s just say there is a hole there. It’s like, “That’s interesting, you believe there is a hole there.” Somebody said to me recently, “Well, I’m using money to fill the emptiness and it’s not doing it.” Somebody else wrote to me the other day and said, “I was feeling empty so I ate a piece of cake and that didn’t work, so I bought a pair of shoes and that still doesn’t work.”
Right, of course that’s not going to work. Those things don’t actually address why you’re doing what you’re doing. Let’s just go directly to what you’re feeling before you eat the thing, buy the thing. And if you’re feeling empty, and this is the other thing that people sort of say, “What?” I say, “What’s scary about just letting yourself feel empty?”
People feel like if they let themselves actually feel their feelings of what is going on they are going to dissolve, they are never going to be able to get off the bed, they are going to fall apart, they are not going to be able to take care of their kids. That’s not true. Emptiness; if you just let yourself feel it, feels like a lot of space. That’s all it feels like.
We react to our feelings without actually letting ourselves feel them. And if you actually feel them and sometimes it takes doing it with somebody and with support if you haven’t ever done this, but if you do do that you’ll find, “I’m running from my own shadow here.”
I had a friend who tells a story about her 6-year old friend who would say to her, “Imagine you’re in a room filled with tigers. What would you do?” And she said, “I don’t know. I would try to run or I would get a gun or I would hide or I would try to chase the tigers out. What would you do?” And the 6-year old friend said, “I’d stop imagining.” And I think that’s what most of us do.
We imagine that these feelings will kill us instead of stop imagining what the feelings are going to do for us which then all that imagining leads us to buying and eating and doing all these things we can’t afford instead of just stop imagining. Just notice, “I’m feeling sad. I’m feeling lonely. I’m feeling empty.” Okay. Feelings pass, they come and they go. They are like clouds.
Bryan: That’s a nice way to put it.
Geneen: I know. That’s a novel approach.
Bryan: Thank you very much for spending time with us on the show today.
Geneen: Thank you so much.
Bryan: That was Geneen Roth, author of Lost & Found: Unexpected Revelations About Food & Money. Find out more about Geneen and her several books at her website, geneenroth.com. She is also interacting with people every day at Facebook at Facebook.com/geneenroth. Join us again next week for more great personal financial advice and information.
Thank you for listening to today’s episode of the Consumerism Commentary Podcast. We’re looking for feedback. Please email us at podcast@consumerismcommentary.com. To subscribe to the podcast or listen to this or other episodes, visit us at ConsumerismCommentary.com/pod.
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