In zombie movies, the dead rise from the graves and shuffle around the neighborhood looking to feast on human flesh. This past year, life imitated art (and I use the term “art” loosely), and the dead rose to file tax forms.
Yes, you read that correctly. This past year, 16 accountants in the Bronx and Manhattan were charged with filing numerous income tax returns of a dubious nature. These tax returns included making claims on dependents that were not actually dependent (or even related), and filing the tax forms of deceased people to get tax credits.
Fortunately, they were caught by undercover IRS agents who recorded these accountants offering a variety of illegal services.
This is truly a frustrating news story for me because it makes it harder for regular, honest, tax-paying citizens like you and I to get the tax solutions we deserve to our tax problems. For the 16 who were caught, I imagine far more have gone unnoticed and our current “redistribution of wealth” system is taking money from hard workers and funneling to people who would rather file tax returns for dead people than do real work.
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.
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.
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.
Everyone loves tax credits. There’s no better feeling than finishing your income tax return on (or preferably before) April 15 and seeing that you own nothing… or even that the IRS owes you. Long before the money arrives in your mailbox, you’ve probably spent it on something.
Tax credits seem great! But they come at a cost and it is threatening the fabric of our economic system.
As governments support specific groups or reward specific behaviors, they look to income tax credits as a way to manage that support and people make the mistake of thinking that their “great” income tax credits are a bonus.
But the real result is much more startling: A dwindling group of people are paying for a larger and larger group of people. Since the dawn of the new millennium, one in four taxpayers are considered “non-payers” because they owe no taxes (or receive money back). The number of non-payers grew by 36% while the number of tax filers grew by just 13%. So the gap is narrowing and the IRS is evolving into a turnstile of money, taking it in and then pumping it back out again.
This is increasing dramatically and it’s not just for impoverished families any longer! In fact, some families earning as much as $50,000 are able to combine deductions and credits to get out of paying taxes.
In this chart, notice how the percentage of returns with no liability is increasing!
Here’s the reason why this upsets me: tax credits mean the the government, instead of you and I, is deciding to give away our hard-earned money, and deciding whom to give it to.
Democracy being what it is, politicians will buy votes by giving away money that’s not their’s to give away. That will enevitable result, just as it already has, in more and more people getting “tax credits”. This means that a smaller group of high income earners are paying an increasingly disproportionate amount of taxes to support everyone.
If the IRS says you owe money, it’s not just because they want you to pay… it’s because they need to pay off others who are getting an increasing amount of tax credits.
The problem isn’t going away any time soon: Tax credits sound great and win elections. But politicians are just borrowing against the future.
Read more at the Tax Foundation about how Americans are getting out of paying taxes and avoiding societal obligations.
In horror movies, monsters grow to gigantic proportions and terrorize island nations while people run screaming in panic. The citizens of the nation watch in horror as their cities and towns are demolished under the fury of a monster that won’t stop growing.
While that might be entertaining fare for some (but not necessarily me), tax payers face a similar monster that grows and grows and grows. The IRS Income Tax Form 1040. This form is the starting form for individual federal income tax and has been published annually since 1915. (Read more about it at Wikipedia).
Now here’s the scary part. This form is huge and it’s growing. The chart below shows just how big it’s getting.
In 1965, Income Tax Form 1040 was 17 pages long.
In 1975, Income Tax Form 1040 was 39 pages long, more than double the length of the 1965 version.
That’s an average of just over 3 pages of new material every single year. By the time my great-grandchildren do taxes, Income Tax Form 1040 will be longer than my copy of Moby Dick.
Last year’s so-called “Great Recession” wreaked havoc on a number of economic fronts and its effects are still being felt today during tax time.
Here’s the situation, as reported by the WCF Courier and summarized here for your convenience: Last year, people had jobs and income but not all of them had sufficient taxes taken out of their paychecks. This year, some of those people don’t have jobs. The problem? They earned taxable income but now have no income to pay their back taxes.
That’s a difficult situation to be in. On the one hand, I understand the desire that these taxpayers had initially to avoid the constant pay-reducing reminder of income tax by delaying their tax payments. On the other hand, it is a bit like gambling in the sense that they are accepting the risk that they will have an income to pay the tax debt at a later time.
What’s the solution? Unless we reduce or eliminate the excessive taxation of American taxpayers, I don’t see an easy solution. And I’m not about to say “well, they should have…” because should-haves don’t solve the problem right now.
Their best option is to file their income tax and pay what they can, even if they can’t pay it all. As the article correctly points out, the penalty for not filing is greater than the penalty for filing and not paying. So it always “pays” to file your tax return, even if you can’t pay.
The next thing they should do immediately after filing? Contact a licensed tax attorney. It is my belief that tax attorneys are the one group of tax professionals best trained to assist you. I believe they’re more aggressive in representing you than a CPA or accountant would be. Tax attorneys aren’t afraid to look at different options which might help you.
Tax attorneys aggressively go to bat for taxpayers who are staring at the open hand of the “tax man” and wondering how they will fill it. We use 100% legal tax resolution strategies, tried and perfected over the years, to help people in difficult tax situations.
No tax case is hopeless, and of course the options will vary from case to case.
The Internal Revenue Service is a big organization full of people. Imperfect people. And, although they hold tax payers to a high standard, they themselves need to be held to an equally high standard of ethical responsibility when it comes to our taxes.
Recently, I came across this article from SFGate about an IRS tax officer who crossed the line. You can read the full article here but I’ll summarize it for you and give you some of my own thoughts:
Summary: “IRS Officer Indicted…”
Mary Claybrooks worked as a revenue officer at the Walnut Creek IRS office in California. In her role as a revenue officer, she would work with people who were behind on their taxes. So far, so good; that is what she is supposed to do. But here’s the problem: In advising them on how to get caught up in their taxes, she sent them to a specific mortgage refinancing company for which she was paid a “finder’s fee” or commission for the lead. Over a period of 6 years, from 2002 to 2008, she sent at least 2 people to the company (she was charged with 3 counts of acts affecting a personal financial interest. She earned at least $20,000 for the effort).
My opinion as well as a recommendation to the IRS
First let me say that I am all for people making ethical business deals to get ahead. That is what makes this country great. But this was not ethical. Ms. Claybrooks was not speaking into these taxpayers lives as a business person with an opportunity. She was speaking as a person representing the governing authority of the land and, depending on how she positioned it to the people she was working with, it could have been perceived as equivalent to a bribe.
Tax problems should not enrich the personal lives of IRS because it could lead to a case where individual IRS tax officers make decisions based on what will personally enhance their financial situation.
My advice to the IRS is this: Your tax officers must be held to a higher standard and Claybrooks made a lot of money over a long period of time. Although everyone has the right to privacy, there needs to be checks and balances put in place to protect taxpayers from this unjust scenario from being repeated.
If you are a taxpayer facing tax default and you’re wondering what the next step is, you need to talk to an IRS tax attorney. We work for you (not for the government and not for mortgage refinancers or other related organizations) to help solve tax problems.
Bernard Kerik, a former New York City Police Commissioner, pleaded guilty recently of tax evasion.
The Associated Press reports that Kerik was nominated to head up the Department of Homeland Security in 2004, after being nominated to the post by Rudy Giuliani.
During the vetting process that anyone applying for sensitive positions must go through, he made statements that were later proved false. His charges were divided into 3 different categories: Corruption (and these charges were later dropped), lying to the White House, and tax crimes.
Kerik’s Tax Crimes
Kerik pleaded guilty to the following tax crimes:
Lying about paying taxes on his children’s nanny
Hiding income from the Internal Revenue Service
Faking a charitable contribution
Failing to declare on his returns book royalties, consultant fees and the use of a BMW
The Associated Press writes, “Kerik could be fined in addition to being sentenced to prison. He has already agreed to pay nearly $188,000 in restitution and to resummit his personal tax returns for six years, paying past-due taxes and penalties.”
Americans face 4 very different kinds of stresses during tax season. I call them the “April 14 stress”, “April 15 stress”, “April 16 stress”, and “April 17 stress”.
April 14 tax stress
In the weeks and months leading up to the April 15 tax deadline, you (and most other Americans) will be facing the stress of tax preparation. There’s the effort of gathering paperwork, pouring through difficult-to-understand tax forms, juggling paper and a calculator, and hoping desperately that you don’t have to pay taxes this year. The stress comes from finding the time to do taxes and then from trying to figure out each separate line in your tax return.
April 15 tax stress
No sooner is that stress over then the next stressor appears: April 15 is tax deadline day. Most Americans just barely squeak their tax returns in on time and the stress of trying to get it done and rushing through those last minute calculations feels rushed. Did you get everything? What if you didn’t do something correctly? You vow to do your taxes earlier next year (but who has the time?)
April 16 tax stress
Fortunately, not everyone feels this stress, but many people do. If you owe tax and you have to pay it, guess what: your bank account may be drained on this day to cover the check you wrote for your taxes. That’s stressful as you watch your tiny nest egg now devoured. Goodbye to that new sofabed you were hoping for.
April 17 tax stress
Have you ever played roulette and hoped desperately that the ball lands on your number? April 17 tax stress is the opposite: It’s audit stress. You hope desperate that you don’t get picked for the probing and invasive procedure known as the tax audit. And realistically, this stress doesn’t go away on April 18; it hangs over us like a cloud every single day.
If you’re facing these stresses, you’ll find some good advice for handling the April 14 and April 17 tax stress in this article at CNN Money called “A guide to avoid an IRS tax audit“. And if you want to avoid the April 16 stress, give our office a call.
