Tax shelters seem to be especially despised these days — both the people who use them and the countries that harbor them. With so many countries struggling financially, it’s hard to sit back and do nothing to the uber-wealthy individuals and corporations that hide their billions offshore. This past Friday, each G20 nation pledged to make greater efforts to work together to fight tax evasion. This also means they will strive to do more to enforce the tax laws within the borders of their own countries. Besides Switzerland, one of the most infamous tax havens, there are several other nations that have transparency problems, including Monaco, Panama, and Uruguay. Moving forward, the goal will be to get these other nations to sign on as well.
Non-FTB Tax Collectors
If you live in California, the tax man who comes pounding unexpectedly on your door to collect overdue state taxes might not be a tax man at all. The California Franchise Tax Board (FTB) hires private collecting agencies (PCAs) to do some of their dirty work for them. FTB says they keep a close eye on their PCAs to ensure they are treating taxpayers fairly and safeguarding their private information.
The IRS has tried this in the past too with limited success. My own personal experience with the PCAs hired by the IRS was that they were given so very little authority to actually resolve cases that it seemed a waste of time and resources. The IRS initiated PCA contracts in 2006, but discontinued the program in early 2009 due to pressure from advocacy groups who said the collection practices were often abusive. Also, the PCAs weren’t as effective as expected, meaning they didn’t collect as much revenue as their public counterparts.
Nina Olson: "Capable and Dogged"
I feel like my opinion of the Taxpayer Advocate Service is . . . evolving. Not that I ever had anything against Nina Olson personally, I have just always questioned the independence and effectiveness of the organization that sometimes seems like little more than a mini IRS within the IRS. If TIGTA is IRS’ big brother, then TAS is their only child — a chip off the ol’ block. However, the more I see Olson stating an opposing view (opposing the IRS), the more I grow to trust her and recognize the value of TAS in assisting with real tax relief.
In an interview with Bernie Becker of The Hill Nina Olson recently made the following statements describing the natural tension between her agency and the IRS:
You have to get used to the idea that you’re going to walk into a room, no one is going to want to see you there, they are not going to want you to open your mouth. And when you do open your mouth, they’re all going to will you to shut it as soon as possible. Because what you are going to be saying is, basically, pointing out that they didn’t think of something.
Speaking about the IRS’ failure to recognize when their policies are overly burdensome on the average taxpayer, she added:
When they get their mind on something, they just get hell-bent on something — and you could be talking to a tree and it might be more conversational.
I love that quote! Very spunky. Rep. Pete Stark (D-Calif.), someone who knows her better than I do, said she is “capable and dogged” and the driving force behind the IRS’ actions. Read full storyhere.
So am I going to stop taking jabs when I see an opportunity? Probably not. Besides, I still think TAS has a long way to go as far as the ideals and advocacy of Olson herself trickling down to the rank and file.
IRS Accelerates Detection of Fraudulent Refund Returns
Pursuant to its 2011 audit plan, TIGTA conducted its annual audit of IRS activities during the 2011 filing season. The purpose of the audit was to evaluate whether the IRS timely and accurately processed individual paper and electronically filed tax returns. The final report is dated September 28th, but was just released to the public on November 1st.
One of the highlights of this report was the dramatic increase in fraudulent refund returns. As of April 30, 2011 the IRS had identified 775,723 fraudulent refund returns — $4.6 billion worth — compared to 286,670 identified by the same time last year (a 171% increase). Perhaps even more amazing is the fact that the IRS, through its screening efforts, detected 96% of them, therefore, no refund was issued.
The IRS is clearly increasing its efforts in this area. It is even beefing up its screening of prisoner tax returns, which are often fraudulent. As of April 30, 2011, the IRS reported that it had selected 199,854 tax returns filed by prisoners for screening (a 256% increased compared with the 2010 filing season).
Read full report here.
Prominent Chinese Artist Hit with Enormous Tax Bill
The Beijing Local Taxation Bureau says internationally known artist, Mr. Ai Weiwei, owes $2.36 million in back taxes and he has 10 days to pay it.
Weiwei will probably pay the bill in the end (he says he has the means to pay it), but he wants to be sure that the government is applying the law correctly. Somehow I doubt there is much of an appeal process in China, and I would hate to see what might happen if he doesn’t make good after the 10 days have elapsed.
Weiwei is known for speaking out publicly against the Chinese government and the social problems of his homeland. He was held by authorities for 81 days earlier this year without any formal charges, which leads Weiwei and others to suspect that the Chinese government wants to silence him one way or another. Some may see the taxes as a side issue, and just a convenient way for the government to put him away. We have certainly seen this scenario played out in the Unites States as well. See full story here.
IRS May be Levying you in their Underwear
The IRS has expanded its use of a wireless and remote access technology over the past several years, allowing employees to access the IRS Network from airports, hotels, their homes . . . anywhere. While it’s interesting to think of the IRS revenue officer sitting at home in his boxers in front of the TV sending out wage garnishment notices and lien letters, the more noteworthy issues here are (1) the efficiency of wireless technology and (2) the security issues it poses for the American taxpayer. The IRS really has to balance these competing values and TIGTA has stepped in recently to help do some balancing.
Today TIGTA released an audit report giving mostly positive marks to the IRS wireless activities. The IRS has adequate controls in place that monitor whether or not the secure network has been breached, and these controls are functioning properly. However, some IRS employees have been accessing the wireless network from unauthorized wireless devices (personally owned USB wireless adapters).
Landlords are on Frontlines of Pot War
Federal prosecutors are shutting down California pot dispensaries with the efficiency of a nuclear bomb.
Instead of chasing around the dispensary operators, they are focusing on those who lease commercial spaces to them. Even though California legalized marijuana for medicinal purposes 15 years ago, the federal government still considers it a controlled substance. And landowners are subject to federal law which prohibits any owner, lessee, agent, employee, occupant, or mortgagee, to knowingly and intentionally rent, lease, profit from, or make available for use, with or without compensation, any place for the purpose of unlawfully manufacturing, storing, distributing, or using a controlled substance. Title 21 U.S.C. Section 856(a).
And what are the consequences for violating 856(a)? Forfeiture of the property to the federal government. Furthermore, violating federal law is a felony and carries a penalty of up to 40 years in prison. Each new forfeiture action serves as a strong deterrent for other property owners around the state. Full story here.
Law Targets Government Contractors with Tax Debt
A law enacted in 2006 would have required governments at the federal, state, and local levels to withhold 3% of money owed to contractors with even the slightest federal tax debt. The law is kind of in limbo at this point: it is slated to go into effect in January 2013 but lawmakers, including President Obama, are pushing to get it repealed. And it looks like it is going to be repealed despite data highlighting the widespread non-compliance of government contractors.
Arguments for the law:
- Businesses should not be awarded lucrative government contracts if they are not going to pay their taxes.
- It is needed to pay for Bush-era tax reductions.
Arguments against the law:
- It assumes every government contractor is a tax cheat.
- It will cripple some small business who simply can’t float the 3%
- Contractors may pass the costs on to the government.
- It would be difficult and expensive to administer.
- Job protection is more important right now.
I have not seen the text of this legislation, but if it would require that government contractors fully pay their tax bill before getting fully paid by the government, then it seems that would also apply to contractors on installment agreements. Some installment agreements last 5 years or longer, so they would have a long time to wait for their remaining 3 percent!
Perry’s Tax Reform Plans
Republican presidential candidate, Rick Perry, is trying to set himself apart from the other candidates with his bold tax reform talk. He wants to dramatically reduce taxes, and with that would come deep cuts in government funding and government programs. Key points of Perry’s plan:
- eliminate taxes on Social Security benefits
- eliminate estate taxes
- eliminate taxes on dividends & capital gains
- popular deductions remain in tact
- $12,500 personal exemption plus $12,500 for each dependent
Under Perry’s plan, we would get to chose between paying a 20% flat tax or paying under the current system. Those who oppose this proposal say that the wealthy taxpayers in our country would chose the flat tax and enjoy huge savings, everyone else would stick with the current tax system and pay what they are paying now, and there wouldn’t be near enough revenue for the government to continue operating.
Tax Reform Buzz
Some great soundbites in the news today:
If you have a dramatic change in the tax structure at the federal level it’s going to upset the apple cart in every single state in one way or other, so it’s a tsunami.
~ Joan Wagnon, FedTax.net
GOP presidential hopefuls each have their own idea of what needs to be changed about the current tax system. And each claims to know the effect their changes would have, whether it be tax relieffor the middle class or if there will be sufficient revenues to run the government. But according to Wagnon, they’re just guessing (or hoping):
The trickiest question of any proposal is whether you are going to be able to replace all of the income tax and make up the same amount of revenue. It’s impossible to know.
Politicians also talk of abolishing the tax code and eliminating the IRS, but is this realistic?
You’re still going to have a white building with lawyers and accountants. They’re still going to do audits and there’s still going to be complexity to it.
~ Matt Schlapp, Cove Strategies