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Archive for May, 2010
Sunday, May 30th, 2010
Everyone hates an audit and one of the only things that makes us feel better about being audited is knowing that the auditor has to look through tons of boring, number-filled receipts to try and squeeze more money out of us.
But now the IRS has just gotten lazier. Much, much lazier.
Thanks to new rules that are currently being explored and discussed, businesses that file taxes will need to list the areas where the IRS might disagree, and those businesses will also need to write in the amount that the IRS will need to be paid if it turns out that the IRS is correct in their assessment.
In short, if these new rules go through, the IRS will basically be asking businesses to do the work for them by requiring them to do a preliminary “self-audit” that will raise red flags for the IRS. That’s like walking up to a thug and saying: “If you hit me here and here, you’ll easily be able to take the $10 I have in my wallet.”
BusinessWeek.com brought this to our attention and they quote one tax lawyer who correctly calls this what it is: a revenue-grab for the IRS. They want to increase their auditor’s efficiencies (who currently spend 25% of their time looking through documentation) and they want to find new opportunities to make money. Instead of using auditors to do the heavy lifting, they are requiring businesses to announce what they could owe if the IRS pressed the issue.
This is terrible news for taxpayers. While it is still currently in discussion and will initially only affect businesses, I can foresee this becoming a widely used tool by the IRS to have taxpayers announce to the IRS: “This is the upper ceiling of what you can audit me for, and here are several ways that you can audit me.”
If this rule goes through, it will be a sad day for American business… And some day it will be a sad day for individual taxpayers, too.
(Image source: John-Morgan)
Tags: irs audits, self auditing, tax audit, tax collection tools, tax liability
Posted in IRS, Income Tax, Tax Audits, Tax Collection | 1 Comment »
Friday, May 28th, 2010
Do politicians ever lower tax rates? Yes they do, but not often enough.
During his State of the Union speech in 1964, President Lyndon B. Johnson discussed the Revenue Act which ultimately led to the lowering of income tax rates.
You can read more about the Revenue Act of 1964 here, which lowered the individual income tax rates and the corporate income tax rates.
(more…)
Tags: income tax reform, revenue act, Revenue Act 1964, tax rate reduction, tax reduction, tax reduction law, Tax Revenue Act, taxes and the president
Posted in Income Tax, Tax Reform | 1 Comment »
Wednesday, May 26th, 2010
When people hear about other people with tax problems, they may often think that it was intentional, but those with tax problems can frequently report that it was not. A common cause of tax problems is not intent but complexity!
There are thousands of pages of IRS tax documentation and the IRS themselves require an army of experts who spend every waking hour navigating this documentation. They package it up into forms and guides and ask millions of Americans to be completely accurate… or else. Minor errors and tiny oversights can trigger invasive and disruptive tax audits.
How bad is it? Here’s an info-graphic about the tax system that we love. For those of you who prefer text instead of images, I’ve interpreted it below.
There are about 138 million taxpayers in the United States and these taxpayers pay a whopping $2.3 trillion (yes, with a “t”) in taxes each year. (Who can afford college tuition at that rate?). Even though that 2.3 trillion is such an unbelievably gigantic number, it’s worse knowing that 92 million taxpayers (more than half of all taxpayers!) make less than $50,000 per year and pay between 10% and 15% of their income in taxes. Meanwhile, 5 million taxpayers make more than $200,000 and pay 20% to 25% in taxes each year.
Ready for some more shocking numbers? Some say that over 16% of Americans evade taxes each year while 78% of those who file taxes get $2,700 back in their returns. That results in over $345 billion dollars of lost revenue (worth 2.6% of our national GDP).
Worse yet: The tax code in 1913 was 400 pages but now it’s over 70,000 pages long, so it’s not surprising that the IRS themselves estimate that it will take you more than 24 hours of straight calculations to do your own tax returns! It’s no wonder that more than 60% of Americans pay someone else to do their taxes.
(source: QuickSprout)
Tags: chart of US taxpayers, income tax infographic, IRS infographic, tax code, Tax Collection, tax collection system, tax complexity
Posted in Tax Law, Tax Reform | 1 Comment »
Monday, May 24th, 2010
 Pamela Anderson, the Dancing With the Stars contestant has made California’s list of the top 250 people and businesses who owe more than $100,000 to the state. California claims that Ms. Anderson’s personal income tax owed is $493,144.68.
The former Baywatch star, Malibu resident and current Dancing With the Stars diva should have plenty of money to pay state income taxes and claims it was a simple misunderstanding that will soon be resolved.
Read more about Pamela Andersons back tax problem at the LA Times.
Tags: Pamela Anderson tax problem, Pamela Anderson taxes, Pamela Anderson taxes owed
Posted in Income Tax, State Taxes, Tax Problems | 1 Comment »
Sunday, May 16th, 2010
Pennsylvania has a common problem. Hundreds of millions in unpaid taxes. And it needs that revenue.
The state took the offensive with a $3 million ad campaign. The television ad begins with a satellite view of earth. A serene computerized woman’s voice is heard. It sounds like a female version of the computer voice from the film and novel “2001″ which has a computer which wants to control humans.
There is a target in the ad. It’s centered on a homing beacon. The computer zooms in on the United States.
The voice says, “We have contacted the tax delinquents and we do know who they are. We have addresses.”
(more…)
Tags: Pennsylvania income tax, tax amnesty video, tax collection PA
Posted in Income Tax, Tax Collection | 6 Comments »
Friday, May 14th, 2010
The more government tries to “help” us, they more they complicate our lives and suck up our time.
From the new healthcare bill: businesses will have to issue 1099s whenever they do more than $600 of business with another entity in a
year. For the $14 trillion U.S. economy, that’s a load of 1099s that could fill Air Force One.
Read more here about the costly IRS mandate slipped into the new healthcare bill.
In exchange for “helping” us, Big Brother always seems to want to know more, and more, and more about us. Especially about how we use our money and who we pay.
That’s a kind of “help” I can do without.
Tags: form 1099, tax forms
Posted in IRS, Tax Law | No Comments »
Wednesday, May 12th, 2010
Your taxes have been filed. You sit back and relax, and maybe even wait for an overpayment refund. All seems right with the world. But then you get something strange in the mail. A letter from the IRS but you think there must be some mistake: You owe them MORE; or, you get back less than you were expecting.
What should you do? Some might accept it as their unlucky situation, as if their tax return was a slot machine and it came up as three different symbols instead of the 3 lemons you were expecting. I suspect the IRS is banking on this. After all, they are the faceless, bureaucratic giant and you are the lowly person afraid that you’ll open Pandora’s Box of Audits if you say anything.
But you do have options if you don’t like what the IRS is dishing out. The IRS has a system in place for taxpayers to file appeals. It’s with the IRS Appeals office, which is a separate and independent office so you don’t have to deal directly with the people who worked on your return.
When appealing an IRS decision (including your refunds or other things like penalties, interest, trust fund recovery penalties, offers in compromise, liens and levies), you should pull together as much information as you can in order to support your case. And, when appealing, you can represent yourself or have representation from a tax attorney.
For more information about filing an appeal with the IRS, download this IRS-created PDF called
“Your Appeal Rights and How to Prepare a Protest if You Don’t Agree“.
The IRS is a tough, hard organization, but if it has a softer side at all, it’s the folks who work for the Appeals Division.
Tags: appeal, Income Tax, income tax filing, IRS, protest, tax owing, tax refund
Posted in IRS, Income Tax, Tax Problems | 1 Comment »
Monday, May 10th, 2010
In a recent article by Robert Samuelson at RealClearPolitics.com called “How Big a Government Do We Want?“, Samuelson talks about a proposed Value-Added Tax (VAT) which its proponents suggest would relieve the US of its disproportionate tax burden and help to pay the deficit.
While a sales tax SEEMS like a good way to redistribute taxes to everyone who buys (instead of charging higher income taxes to people who earn more money), it is not a good solution. Implementing a VAT is complicated and, as Samuelson suggests, will only increase government.
And that is what concerns me more. Of course I don’t want higher taxes, but a bigger government is even more worrisome – because they create unnecessary spending (case in point: More of our income taxes go towards the federal pension than to education).
What’s the perfect size of government? I want it to be no larger than it was approximately 100 years ago. It want it small, the way it was before the big government era when we thought “the bigger, the better.”
Here’s why: The government is killing us while it benevolently attempts to provide us with a cradle-to-grave safety net:
- It’s killing us with taxes
- It’s killing our spirit of independence and non-government dependence
- It’s killing our “can-do” spirit
The US was founded on liberty and opportunity and both of those things are quickly disappearing as we become overtaxed and then enslaved to debt.
Large groups of Americans now wait eagerly for their government check:
- Farmers
- Corporations
- Earned Income Credit recipients
- Seniors who obtain more in benefits/insurance value than their tax contributions would have ever bought on the open market
The government, through its hand-outs, is creating class warfare, age warfare, and warfare between small business and large business.
- Those that earn more are encouraged to dislike those that earn less.
- Those that earn less are encouraged to be suspicious of those that earn more.
- Those that are older are encouraged to be hyper sensitive to younger folks who don’t want to pay for their benefits.
- Those that are younger are beginning to begrudge the payments they must make to seniors who are better off than they are, or already have their homes paid off, while they also receive extra tax deductions, and in some instances may be excluded from paying property tax on the local level.
- Small businesses looks askance at corporate welfare.
- Large businesses seek to gain preferential tax treatment over smaller competitors.
Everyone SAYS they don’t like taxes and big government, but they’ve already been “bought”. They want everybody else’s government check be reduced or stopped – but they don’t want their government benefits or preferential treatment touched.
Do we have the guts to have a smaller government? Do we have the will to fight for reduced government that may actually cause our own governmental benefits to be cut? As I survey the present landscape, I don’t see much reason to be optimistic.
Tags: Income Tax, IRS, IRS reform, problems with tax, redistribution of wealth, sales tax, smaller government, Tax Reform, taxes, taxes owning, value added tax, VAT
Posted in IRS, Income Tax, Tax Reform | No Comments »
Saturday, May 8th, 2010
The news site Politico.com recently reported about a poll was conducted by Pew Research on how favorably people rated various government organizations.
The good, the bad, and the ugly
Just to give you a range for some context: At the top of this is the Post Office with an 83% favorability rating. At the bottom of this is education, earning only 40% favorability among Americans.
The FBI, Defense Department, and Center for Disease Control all rated 67%. The CIA rated 52%.
Now let’s talk about the IRS
Politico reported that the IRS made the biggest jump, up 9 percentage points to 47%. At first glance, this could be good news for the IRS, but let’s take a little closer look at the poll.
Three problems with these findings
First of all, there’s a 4 point margin of error. So the CIA might only be favored at 48% and the IRS might be favored as high as 51%.
Second, they polled 2,505 people. According to US Census data from July 2009, there just over 307 million people. I did the math. 2,505 is 0.000816% of 307 million people. Now, I’m not a statistician but I do wonder whether or not that is a statistically valid sample. And I wonder who they are asking: Are they asking confirmed taxpayers? Is it an equal representation of “wealthy” people who pay disproportionately higher taxes? Is it middle-income earners Americans? Is it “poorer” Americans? Did they divide it up equally among all the states? I’m not sure how they conducted the poll but we can be sure of one thing: Those 2,505 respondents were the ones who answered – either by picking up the phone or responding to questions at the door. I’m confident that this is not an accurate sample.
Third, they conducted the poll between March 11 and March 21. That’s about one month prior to when people’s taxes are due. The people who know they are getting money back on their tax return are likely going to respond positively. If this same poll was conducted one month later, while people were wading through difficult-to-understand tax forms, I’m sure that the number of folks expressing favorable feelings toward the IRS would have been lower.
So, while the IRS might be happy that it jumped 9 percentage points, let’s also consider that while tax burdens have dropped for some, the reality is the tax burden has become more burdensome for that decreasing number of citizens who actually pay taxes (see my recent blog post about the Tax Freedom Day).
The reality is, no matter how many people view the IRS favorably, the IRS is an aggressive tax collection agency whose only job is collect money. And they are becoming more aggressive as Congress needs more and more money to spend.
Don’t be fooled by recent IRS public relations platitudes about wanting to serve the public. They get paid to collect your money.
Tags: income tax filing, IRS
Posted in IRS | No Comments »
Tuesday, May 4th, 2010
When you don’t pay your taxes, the IRS is on you like ants to a picnic. I know that because everyday I work with people whose tax problems are exacerbated by strong arm IRS tax collection techniques.
But what about people who overpay their taxes? It might seem hard to believe but the IRS had $1.3 billion sitting owed to 1.4 million people who did not file a tax return for tax year 2006. (You can read more about it at this IRS press release). This outstanding amount owed back to taxpayers happens because someone might pre-pay their tax based on quarterly estimates but then they fail to file a tax return at tax filing time.
The problem is, if you didn’t file your income tax within three years you generally forfeit your right to receive that refund. That means the money will not be leaving the U.S. Treasury, and Congress will be able spend it for its many “important” projects.
It doesn’t seem fair does it. The IRS gets a much longer time period to collect any money you owe them, but you get a much shorter time period to collect money from the the IRS that they owe you.
I guess Congress, who makes up these screwy rules thinks it’s fair, but that because it benefits them.
They fix the rules in their favor.
Tags: Income Tax, income tax filing, IRS, irs filing date, Tax Collection, tax owing, tax payments, tax refund, taxes
Posted in IRS, Income Tax, Tax Collection | 1 Comment »
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