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Chick-fil-A is what it is— a successful company whose founder’s personal views define its corporate culture. It’s a Ben and Jerry’s for the right, with an equally high calorie count.
The Treasury Inspector General for Tax Administration (TIGTA) is the government watchdog agency that makes sure the IRS does its job. At least that’s what they’re supposed to do. From where I sit, it looks like they do a great job identifying IRS problems, and describing the problems in audit reports, and even in recommending solutions to the problems. But, what seems to be lacking is follow-up.
Case in point: according to the most recent TIGTA audit report, the IRS let about 1.5 million fraudulent refund returns slip by them in 2011 — a potential loss of $5.2 billion. As usual, at the conclusion of the report, TIGTA made its recommendations to reduce these illegal tax relief schemes — seven of them this time. But then what? This is not a new audit topic, and I wouldn’t be surprised to find out that TIGTA has made similar (if not the same) recommendations before. When does TIGTA follow up on this to see if the IRS made the recommended changes?
This is TIGTA’s detailed audit process (as shown on their website):
Engagement letter
Opening conference
Fieldwork
Discussion draft report
Exit conference
Formal draft report
Agency response
Final report
Shouldn’t there be a 9th item on this list for “follow-up”?
US citizens are generally required to pay taxes on their worldwide income, regardless of where they are living. If you don’t believe me, you can read all about it in IRS Publication 54 “Tax Guide for U.S. Citizens and Resident Aliens Living Abroad.” So the olympic medals and prize money obtained by American athletes — you guessed it: taxable.
And that’s just the prize money tax rate associated with the medal. If our Olympians really want to do things correctly, they will have to pay tax on the medal itself too.
Some think that our “amateur” athletes should get tax relief similar to that which we extend to our military personnel. They do represent the United States, but I’m not sure the public policy reasons are quite the same.
The IRS is often called upon to assist other branches of the Federal Government. Even though the IRS is normally willing to “do them a solid,” those agencies that contract with the IRS through reimbursable work agreements are not paying the IRS fairly. The IRS is not always getting fully reimbursed for services rendered. But according to the latest TIGTA audit report, nobody deserves more blame for this than the IRS itself.
To give an idea of how common these service agreements are, TIGTA identified 89 such agreements in 2011 alone. They selected just 6 agreements for audit and found that 50% of them were not reimbursed properly. These are some of the problems TIGTA found:
IRS is not consistently including overhead in the calculation of the reimbursable service costs
IRS is not consistently documenting the costs associated with service agreements so they can be independently verified
IRS is not consistently involving the CFO Office of Cost Accounting in the calculation of overhead
These are multi-million dollar errors that result in less money to spend on frustrating the tax relief efforts of ordinary taxpayers and their attorneys. Further proof that the IRS needs to do better with what they’ve got before we can in good conscience allocate to them any more funding.
In 2009 Zurich-based UBS avoided federal prosecution by paying $780 million, admitting it helped thousands of United States citizens evade federal taxes and turned over the names of 250 clients to U.S. authorities. U.S. prosecutors have since charged about 50 Americans with tax crimes
One such former client, Luis Quintero, from Florida, was recently sentenced to four months in federal prison for failing to disclose $4 million in Swiss bank accounts. Quintero, a 64-year-old wholesale perfume importer, pleaded guilty in April and agreed to pay a $2 million fine for failing to file a Report of Foreign Bank and Financial Accounts for the calendar year 2006, according to court records. Read the full article by Susannah Nesmith here.
As much as I can, I try to read the classic literature that somehow eluded me while in high school. I have been reading The Grapes of Wrath, by John Steinbeck and thinking about the migrant farm workers picking fruit and cotton in California during the Great Depression. Did any of these people pay income taxes? I’m confident the answer is “NO.”
The Grapes of Wrath, although a book of fiction, is historically very accurate, right down to the wage rates. Cotton farmers paid about $1.00 per 100lbs of cotton picked, and wages dropped as the number of unemployed workers multiplied and as the country moved deeper into depression. A healthy male picker could make up to $3.00 per day. Almost everything they made was spent on food, and it was barely enough to survive.
I found some scholarly writings from the University of California stating that a vast majority of the farm owners at the time were deeply in debt and way behind on their taxes, so there is little doubt whether the laborers were paying taxes if the owners weren’t. Furthermore, the migrant workers had no permanent homes; it would have been difficult for the government to track them down.
Many families find themselves in similar circumstances today: making barely enough to get by even on their pre-tax income and desperately seeking tax relief in one form or another for debts that are already on the books.
If you are following the news stories concerning the financial woes of Rapper Young Buck, you probably know that his IRS situation has escalated to the point that his property is being sold at auction . . . right now. The auction was to begin today at 10:00am in Nashville.
When a tax debt is not immediately paid, the IRS moves pretty quickly through its arsenal of ordinary collection tools like the wage garnishment and bank levy. But when it comes to seizure and sale of personal property, the IRS wants to be absolutely sure it has tried every other less-intrusive alternative. So in the case of Young Buck, and any other property seizure case, we can be fairly certain that the IRS has already tried, perhaps over the course of months or years, to collect what is owed “the nice way.”
The IRS provided a list of everything being sold at today’s auction and even pictures of most of the stuff. It might be fun to take a look because I can assure you that all your stereotypes and assumptions about what might be sold at an IRS / rap star auction will be . . . well . . . confirmed.
Any tax relief attorney would love to know exactly how the IRS selects returns for audit, but the IRS only gives hints here and there, leaving us to piece it all together ourselves. A recent TIGTA audit report offers some insight into the process:
image via freepik.com
The IRS developed a variety of sources to select returns for audit. The IRS strives to select for audit those returns for which its examiners are likely to find areas of noncompliance and recommend changes to one or more items reported on the return. One audit source is the Discriminant Index Function (DIF) system, which the IRS has relied on over the years to help decide how to best allocate its audit resources. The system uses mathematical formulas to calculate and assign a score to returns based on their audit potential. The higher the score, the greater the chance an audit will result in recommended changes to the return.
~ TIGTA Report No. 2012-30-062 (June 21, 2012)
So, we know there are mathematical formulas involved. We know the IRS is looking for returns with errors or “areas of noncompliance.” And we know that one of the resources the IRS turns to for determining which returns to select for audit is the Discriminant Index Function (DIF). There appear to be multiple formulas and multiple systems involved in the audit selection process. Continue reading “The Discriminant Index Function”→
I assure you I don’t purposely set out looking for stories that make the IRS look ridiculous. And I don’t purposely look for evidence that the IRS is a blood-thirsty machine set on crushing any hope of tax relief. These kinds of stories just happen to be much more prevalent than ones that make the IRS look competent and organized.
In 1959 a prominent artist named Robert Rauschenberg created a masterpiece called “Canyon.” While Rauschenberg was known for incorporating found objects and junk into his art, in “Canyon” he upgraded to an actual stuffed bald eagle that once belonged to Theodore Roosevelt. Through the years, Rauschenberg’s art attracted the attention of collectors, including New York art dealer, Ileana Sonnabend. I don’t suppose he ever considered that his imagination would attract the attention of the IRS.
When Sonnabend died, her heirs inherited some very high-end art, including “Canyon,” and were hit with a fat estate tax bill. Not fat enough for the IRS. The new owners of “Canyon” valued the piece at $0 based on appraisals from world renowned auction houses. The piece cannot be sold because of the bald eagle — it would violate federal wildlife protection laws. But the IRS has billed the heirs for another $29 million based on its own $65 million appraisal of the piece. The IRS Art Advisory Panel acknowledges that “Canyon” cannot legally be sold, but they “just cringed at the idea of saying that this had zero value. It just didn’t make any sense.”
We think the IRS has been tasked with more than it can handle now that it will have to enforce the new health care law, but it takes just one look at the Chinese taxing authority to rethink how bad it really is here.
Chinese tax collectors take multitasking to a whole new level. The case of Chinese artist/political activist Ai Weiwei shows how their duties go far beyond collection of revenue. In between their bean counting sessions, they somehow found time to detain and interrogate Ai in a secret location for 81 days last year. All in a day’s work for the Chinese tax authority.
The Chinese Government insists that it is only interested in Ai paying his tax debt, but it is clear that what they really want from Ai is silence. This story is back in the news now because Ai recently lost his appeal. A Chinese appellate court rejected his argument that the tax authority had violated its own procedures by temporarily robbing him of his freedom last year. And still Ai refuses to hold his peace when it comes to important Chinese social & political issues. See full story here.
