Every day I work with people who face tremendous tax problems: They owe taxes and are exploring what options they have to deal with it. It’s something I do every day so I was surprised to read an article that said the IRS is becoming “soft” on tax liens. You can read the article yourself here but I’ll summarize it for you:
The IRS can legally file tax liens any time a taxpayer owes money and has not fully paid it off. There are usually only limited circumstances when the IRS won’t file tax liens, including when the tax debt is for a small amount, or perhaps when the tax liability is for a deceased person who died without any assets, or when the taxpayer is in an active bankruptcy.
In the old days, the IRS would often not file a tax lien, but today, with the federal government needing revenue so badly, IRS collection folks are much more likely to file a tax lien and to to file it faster.
Of course this makes sense for the IRS: If someone owes tax money the IRS wants paid, and filing a tax lien is a a way to put pressure on the taxpayer. A tax lien also helps the IRS protect their position and increasing the odds that they will eventually get paid. Nowadays they try to file the lien as soon as they are legally allowed to do so.
We all know the IRS is a very large bureaucracy, and they make mistakes all the time, so it wasn’t a great surprise that when the IRS recently “audited” themselves that they discovered there were 210 files at two field offices that never had any contact or follow-up and accounted for a potential $6.4 million in collectible taxes. Basically, 210 files were just sitting there, being ignored. In addition to that, tax officers closed over 2,700 files and called them “uncollectable” but never gave a reason. In total, between 2002 and 2008, it was discovered that $1.4 billion in delinquent taxes were shelved rather than followed up on.
Are they getting lazy at the IRS offices? How are IRS officers deciding which files to pursue and which ones to ignore? How can we as taxpayers ever know if we are receiving fair treatment if we are hit with a tax lien while someone else who gets shelved?
The most likely answer is that there are so many “taxpayers” who are delinquent in paying their taxes or in filing their tax returns that the IRS doesn’t have the resources to deal with them all.
The IRS hasn’t gotten soft, in fact they’ve gotten much more aggressive, and busier. If you owe back taxes, you should still sleep with one eye open because the tax man will eventually come looking for you.
About Arnold Schwarzenegger
Arnold Schwarzenegger rose to fame as an Austrian body-builder, then a B-list movie actor, and finally a headlining star. No one goes to see an “Arnie” movie because of his acting ability but we all pay a lot of money to see his movies anyway. As the result of movie earnings, plus other business endeavors, Schwarzenegger’s net worth is measured in the hundreds of millions.
Of course, this story wouldn’t be complete without the step from acting to politics and now Arnold is the governor of California, a state that is teetering on the verge of financial collapse.
Californians can rest assured that their government officials will pay their federal taxes, as long as they are continuously reminded by the IRS.
Arnold Schwarzenegger tax problems
On May 11, 2009, the IRS filed a $79,000 tax lien against Arnold Schwarzenegger. (Source: The Los Angeles Times). While this is more than many people make in a year, Arnold’s people quickly dismissed it as an error and said the governor paid his tax debt right away.
Taking control of your financial future and forging an entrepreneurial path seems like a great way to build wealth and get out from under the thumb of annoying bosses and even more annoying coworkers. It’s the American Dream. In the recent economic meltdown, many people were forced out of their jobs and used the opportunity to start businesses of their own. Now here’s something you may not expect me to say: It was the ones who failed at being self-employed and had to find a “normal” job who were better off.
Now, don’t get me wrong. I’m all for the entrepreneurial spirit. I think that initiative is one of the great things about this country. But we have a burdensome tax system that tends to punish those who start their own businesses!
You’d think that entrepreneurs would get tax breaks of all kinds simply for starting a business, taking financial risks, and keeping the economy going. It should be that way. However, many brand new entrepreneurs discover all too quickly that it’s the other way around.
When someone works for an employer, the employer splits the cost of Social Security and Medicare with the employee, each paying a portion. And, the employer takes off the employee’s taxes before the employee gets their check. So the paycheck might be lower but it all belongs to the employee.
Now consider the entrepreneur who needs every advantage he or she can get: They have to pay Social Security and Medicare entirely themselves, and the money they get in hand from customers still needs to be split into income and taxes.
On the website Chron.com, Associated Press writer Joyce M. Rosenberg recommends that entrepreneurs put 40% of all after-business-expense income into a bank account that they can give to the government in the form of taxes. (Read the article here).
It’s a disappointing reality that entrepreneurs who need a brief advantage to get their businesses running are expected to pay more than those who work for someone else.
So what are you waiting for? Start your own business today! The IRS needs to bolster its revenue stream.
The IRS wants taxpayers to pay their outstanding taxes. If those taxes aren’t paid, the IRS has a growing arsenal of actions it can take, from garnishing wages to seizing assets.
That’s right, the IRS can and will seize your assets in lieu of your tax payments. Now, don’t think of them as a giant pawnshop where you can get your favorite chair or your mother’s wedding ring back once you’ve paid. The IRS will put your stuff up for auction! Airplanes, boats, vehicles, homes, property, the list goes on and on. (Check out the IRS Auction Site… if you don’t see something you like today, new items are listed regularly, all “donated” by tax payers who are unable to pay their taxes).
Now, more than ever, people with tax problems need to take an active approach to fighting the IRS to clear up their tax issues and their good name. Leaving your tax problem and hoping it will go away could mean that you’ll get a knock at your door and they’ll be asking for the clothes on your back (figuratively speaking)! Wishing that the IRS won’t come after you isn’t much of a game plan, and it isn’t going to work. If you have tax problems, they’re looking for you so they can look through your stuff like a kid with a catalog at Christmas.
After watching the famous movie Jaws, you might not go near a beach for a while after viewing it. And although you and I might find a great white shark to be a scary villain in Steven Spielberg’s movie, Actor Robert Shaw was scared of another (and far more menacing) foe: The IRS tax collector!
Robert Shaw lived from 1927 to 1978 and starred in such hit films as The Sting, From Russia With Love, The Taking of Pelham One-Two-Three, and (of course), our favorite fish movie, Jaws.
Shaw played Quint, a gruff sea captain who takes Chief Martin Brody (played by Roy Scheider) and Matt Hooper (played by Richard Dreyfuss) out to the ocean to catch and kill the shark (not the government sharks that want to garnish your wages and tax your earnings). (more…)
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.
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.
I came across this interesting study done on the behalf of the IRS Oversight Board. The study asked participants if they felt it was okay to cheat on their taxes. The study itself has been done since 2002 and over the years, the range of people who feel that it is completely unacceptable to cheat on their taxes usually fluctuates between 84% and 86%. In 2009, 84% of respondents said it was unacceptable to cheat on their taxes.
What I find interesting is that in 2003, only 81% said it was unacceptable to cheat on taxes and in 2008, 89% said it was unacceptable to cheat on taxes.
Along with the answer of “completely unacceptable” (the orange bars in the graphic below), somewhere between 6% and 12% believe that it is okay to cheat a little here or there (the light blue bars, below). And 3% to 5% of respondents believe that you should cheat as much as possible.
You can read the rest of the article at the New York Times.
So I went and dug up the number of tax returns filed to see what this meant in real numbers. Let’s use 2008, because we have all the data we need from that year:
In 2008, according to a report by the IRS, 155 million tax returns were filed. So here’s what it meant for 2008 tax returns:
89% of respondents, or 137,950,000 tax returns were completely honest.
6% of respondents, or 9,300,000 tax returns had a few cheats here or there in the return.
3% of respondents, or 4,650,000 tax returns were as dishonest as possible.
Those are interesting numbers. Here’s my take on them: I believe in paying less tax, but I believe in doing so legally. The IRS needs to be more understanding with people who are having difficulty paying their taxes, and they need to offer them real options to help them with their tax debt.
Most people with IRS problems want to want to pay their tax debt, but if money is tight, they need the IRS to be more willing to work out an arrangement. Whether that’s a payment plan or an Offer in Compromise settlement offer.
And just as importantly, the IRS needs to create ways to reduce the number of income tax cheaters (13,950,000 tax returns have some form of dishonest response).
By being so tough on honest people who are having trouble paying their tax debt, instead of going after the cheaters, the IRS is not doing its job as well as it sould.
If you give a child $1.00 so they can go to the store and buy some candy, what would you think if they came back with $1.52 worth of candy? Obviously there’s a problem. Did someone miscount? Did they steal the additional $0.52 worth of candy? Is the child running a credit tab at the store?
Basic household economics would suggest that we should only spend what we have. And everyone knows that overspending on credit is risky, and if allowed to escalate, will eventually catch up to you.
But the US government is doing exactly this with our income taxes. According to a report which I found in the St. Petersburg times, written by Brian Riedl of the Heritage Foundation, the IRS will collect $18,276 per household (which is shocking enough already) but here’s the worse part: It will spend $31,406 per household (source).
I can’t think of another word for that besides “ghastly”. No one could run their home for very long with that kind of fast-track-to-bankruptcy mentality but the government seems to think it can.
The money is spent like this:
Social security: $9,949
Defense: $6,071
Anti-poverty: $5,466
Unemployment benefits: $1,640
Interest on the federal debt: $1,585
Veterans’ benefits
Federal employee retirement benefits: $1,018
Education: $914
Highways/mass transit: $613
Health research/regulation: $550
Mortgage Credit: $470
Now, just to be clear, I DO think that some of this government spending is important. We need to invest in the defense of our nation, some infrastructure, and some very limited regulation. But I’m concerned about the numerous other spending – overspending, really – that is bankrupting us as a country and as individuals. Does anyone else find it scary that we’re spending that much per household on anti-poverty? And I’m also not happy that we’re spending so much on federal employee retirement benefits.
You don’t need to be an economist, or have an MBA, to figure out that the U.S. government, unless we change our governmental spending habits, is heading for trouble. But the solution will be not be easy.
We must each stop fighting when our slice of the USA money giveaway is challenged. All of us, including corporations, farmers, seniors, and other individuals must all stop protesting when our favorite “benefits” and “entitlements” are being reduced.
We must stop merely pointing at “the other person” as the one who needs to have their “benefits” and “entitlements” reduced or eliminated. We must also be willing to point the finger at ourselves.
All of the groups appear to selfishly want to get as much as they can for themselves from the government, but the long-term way for each of us to better ourselves is to get the government out of the business of taxing us so much and then giving away much more.
Only then will we be economically better off, and be more independent of the stranglehold that Congress’ IRS has over us. I can say I am in favor of giving as little tax as possible to the IRS, but I must be willing to have our government make the hard choices necessary to make that happen.
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.
Every day I work with people who face tremendous tax problems: They owe taxes and are exploring what options they have to deal with it. It’s something I do every day so I was surprised to read an article that said the IRS is becoming “soft” on tax liens. You can read the article yourself here but I’ll summarize it for you:
