Weiwei “Lawyered Up” to Challenge Tax Bill

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Ai Weiwei is ready to pony up the cash (8.5 million yuan) to the Chinese tax authorities, but they are not in agreement over the method of payment. According to Weiwei’s lawyer, the law dictates that they must guarantee the funds before they can dispute the assessment, but they have to be careful that the way they do it does not admit liability. They would prefer to provide the government with a bank deposit certificate and hold the funds in Weiwei’s account. The government, of course, wants the money wired directly to them. Full story here.

Weiwei is no idiot.  He has reason to be concerned with wiring the tax authorities the payment, which amounts to $1.3 million. In the United States if your hard-earned money somehow finds its way into IRS coffers (by way of bank levy or wage garnishment), it is significantly more difficult to get it back than if it was never collected in the first place. No comment, by the way, on whether or not the funds earmarked for Weiwei’s tax debt were hard-earned given the fact that it was gifted to him by many of his political allies. I’m sure if Weiwei were to pay them the amount in dispute, and then win his tax case, getting that money back would be a procedural nightmare for his attorney.

How Much Can They Take?!

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The short answer to this question is “A LOT.”

My clients always ask me how much the IRS can take from their paycheck if the IRS decides to issue a wage garnishment. This is a common question from someone who does not understand how the process works. The IRS does not take a percentage of one’s income; instead, the IRS is bound by a complex set of levy exemptions. The IRS takes all the income except the amount that is exempt from levy as shown on the tables in Publication 1494. It may be more appropriate to ask, “How much is the IRS required to leave for me?”

The amount of income that is exempt from levy depends primarily on the taxpayer’s filing status, the number of exemptions claimed, and the pay frequency. As an example, a single wage earner claiming one exemption who is paid once a month is allowed to take home $791.67 based on the 2011 rate. The IRS gets the rest regardless of the taxpayer’s actual earnings. That same wage earner, if he were paid weekly, would take home only $182.69. A married wage earner filing jointly and claiming two exemptions is allowed to take home $1,583.33 if paid monthly, and $365.38 if paid weekly.

A wage garnishment can deal a crippling blow to your finances. But a wage garnishment can be stopped. Contact Montgomery & Wetenkamp for more information.

www.mwattorneys.com

The Forgotten Tax Accounts

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Last week I blogged about Private Debt Collection (PDC) firms hired by the IRS and FTB to collect overdue taxes. This is a new development at FTB, and something that was tried for a few years and then discontinued at IRS.

The PDC firms hired by the IRS were given mostly low-yield, low-priority cases from which they were able to squeeze out $98 million in revenue between 2006 and 2009.  The IRS, however, discontinued its PDC program in 2009. And according to a TIGTA audit report, when the unresolved cases were handed back to the IRS, many of them just sat stagnant. Collection actions were not taken on 47% of the cases selected for the TIGTA audit. TIGTA recommended that the IRS develop policies and procedures for working the kinds of cases that were previously transferred to PDC firms. If the IRS does not have the resources to handle these cases, TIGTA even suggested the possibility of reinstating the PDC Program.

Before you get too upset about the statistics cited in this report (particularly the 47% figure), you should know that the sample of cases selected for audit was only 62. For whatever its worth, I have noticed that it is common for TIGTA to work with very small sample sizes in its audits, even though the agency claims it uses “generally accepted government auditing standards.”

IRS Return Preparer Program

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After yesterday’s comments from the Commish (that’s IRS Commissioner Douglas Shulman) at the AICPA fall meeting, there is reason for some tax preparers to be concerned. They have to be careful that their desire to offer taxpayers maximum tax relief and maximum refunds does not override their desire to perform their duties ethically.

Boiled down to its essence, the program will ensure a basic level of competency for return preparers while enabling us to focus on finding unscrupulous preparers.

~ Douglas Shulman, IRS Commissioner

The enforcement segment of the IRS Return Preparer Program will include:

  1. Letters to preparers who have been identified as “high risk,” making sure they are doing their due diligence.
  2. In-person visits with preparers who have been identified as “egregious.”
  3. Letters and in-person visits to return preparers who are not using the Earned Income Tax Credit correctly.
  4. Special crackdown on “ghost preparers” (those who don’t sign or identify themselves with their PTIN)
  5. Undercover shopping visits to preparers who are suspected of engaging in fraud.
  6. Civil and/or criminal prosecution where appropriate.
  7. Coordinated effort with the Office of Professional Responsibility and the Department of Justice.
While there are many undefined terms being thrown around, there appears to be a spectrum of poor conduct and discipline emerging. At one end is the return preparer who has exhibited a pattern of honest-appearing errors who will receive a letter from the IRS (this is something new). At the other end is the preparer who is suspected of something more “egregious” who very well could be tracked down and thrown in jail (this is not new).

In the Spirit of “Movember” . . .

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There are countless and obvious good reasons to grow a mustache, especially during the month of Movember. But have you ever considered the tax implications of maintaining and proudly displaying your mo?

No?

Well, that’s because there are none. At least not yet. All this talk of simplifying (or eliminating) the tax code sounds nice, but it fails to recognize our individual differences, including our facial hair propensities. We need to consider a tax code amendment that would create a tax incentive for mo growers.  Please take the time to view this important public service message from the American Mustache Institute to learn more about how the STACHE Act could help stimulate the economy.

The Weiwei Tax Relief Fund

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Last week we learned about outspoken Chinese artist, Ai Weiwei, and his tax problems. Today the news from China is that Weiwei’s supporters are pooling their money to the tune of $800,000 (and rising) to help him pay what he owes.

Weiwei certainly has the money to pay his tax bill, so what’s the motivation behind these donations? Are these wealthy art collectors who don’t want their Weiwei pieces to lose value? Unlikely. This is an artist who is known and adored for controversy; refusal to pay the government will probably only increase his popularity and increase the value of his work. Also, wealthy collectors would probably not make airplanes out of money and toss it over the gate to Weiwei’s home. Certainly some of the donations are coming from the wealthy and politically connected. However, it is clear that many of the donations are from average Chinese protestors who are symbolically “casting their vote” according to Weiwei.

It’s probably only a matter of time before a high-profile tax protestor in the Unites States pulls some publicity stunt designed to lure like-minded citizens to vote with their checkbooks like they have done in China. Good luck getting that to work here though.

Anti-Tax Evasion Agreement Emerges from G20 Summit

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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.

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Non-FTB Tax Collectors

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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"

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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.

www.mwattorneys.com

IRS Accelerates Detection of Fraudulent Refund Returns

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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.

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