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Unusual tax collection policies of other countries.

Pakistan Hires Transgender Workers to Shame Tax Delinquents

ADAM B. ELLICK of the New York Times Blog reports financial trouble Pakistan is in since taxpayers do not file their taxes. 

He states as my colleague Sabrina Tavernise reports, nationwide, fewer than a million out of 170 million Pakistanis voluntarily filed income tax returns last year. The rate is among the lowest in the world.

In a bid for a solution — and some publicity — the Clifton board borrowed a creative idea that alleviated tax woes in neighboring India were only half of the taxpayers in the wealthy area paid their taxes It hired a team of transgendered tax collectors to go door to door to embarrass the rich until they pay.

Transgendered people, known as TGs in Pakistan, carry a social stigma in the country, and their presence rattles the rich. For many of the TGs hired by the Clifton board, tax collecting is their first salaried job, and two of them still work as sex workers.

“Neighbors will come out and say, ‘Oh, what’s happening?’ and the bad name the person will get, this will maybe convince them to pay taxes,” said Aziz Suharwardy, the board’s vice president. “And that’s exactly what happens.”

The TGs have collected $100,000 in about nine months, 10 times the cost of the program. Still, the TG’s collection barely puts a dent in the board’s $5 million tax revenue shortfall.

It is a strange way to go about collecting taxes but not that there is anything wrong with that. Apparently it is effective as it costs ten times the cost of the collection program.  

Source New York Times Blog

 

IRS paid $513 Million in undeserved home buyer tax credits audit shows.

The Internal Revenue Service has paid out more than a half-billion dollars in homebuyer tax credits to people who probably didn't qualify, a government investigator said today.

Most of the money around $326 million  went to greater than 47,000 taxpayers who didn't qualify as first-time homebuyers because there was evidence they had already owned homes, said the report by J. Russell George, the Treasury inspector general for tax administration. Other credits went to prison inmates, taxpayers who bought homes before the credit was enacted and people who did not actually buy homes.

The popular credit provided up to $8,000 to first-time homebuyers and up to $6,500 to qualified current owners who bought another home during parts of 2009 and 2010.

IRS spokeswoman Michelle Eldridge said the agency worked hard to enforce a complicated tax credit that provided nearly $29 billion to more than 4 million taxpayers. The agency audited nearly 448,000 returns and blocked or denied nearly 426,000 questionable claims, she said.

In all, the agency's enforcement efforts saved more than $1.3 billion and identified more than 200 criminal schemes, she said.

"The timing and differences in the various legislative provisions also created complexity and confusion for taxpayers and return preparers, as well as the real estate industry," the IRS said in a written response to the audit. 

Among the government audit findings of the credit:

• More than 47,500 taxpayers claimed the first-time homebuyer credit even though there was evidence on previous tax returns that they had already owned a home, including deductions for mortgage interest, real estate taxes and mortgage insurance. The report estimated these people claimed $326 million in credits.

• More than 13,400 taxpayers claimed the credit even though they had not yet purchased a home. These people listed future purchase dates on their tax forms. The report estimated these people claimed $97.8 million in credits. The IRS said it believes these estimates are overstated.

• More than 1,000 taxpayers said they purchased homes while they were incarcerated in prison, claiming $7.7 million.

• More than 2,500 taxpayers claimed credits for buying homes for which at least one other taxpayer also claimed the credit for buying. These taxpayers received $11.4 million.

• More than 2,700 taxpayers claimed credits for homes that were purchased before the tax credit went in effect. These taxpayers received $17.6 million.

• The IRS disallowed $531,134 in tax credits claimed by 96 taxpayers who were under age 18, making it unlikely they purchased a home.

See Yahoo News  Stephen Ohlemacher Associated Press 

IRS filed a tax lien against Nicolas Cage for hundreds of thousands owed in gift taxes.

In 2011 The Gift Tax annual exclusion remains at $13,000 per person per year for outright gifts but the exemption amount was made to be uniform with the estate tax exemption amount so there is now a $5,000,000 exemption for those who have not given prior gifts. However in prior law over the past decade the gift tax exemption was just $1,000,000. Nicholas Cage had already given over $1.8m in gifts though since 2004-2009 and the total he now owed as a result was just under $625,000. As a result they were placing a lien against him. 

It is a sad situation continuing his debt of around $14 million that he had previously owed the IRS for income tax issues. 

He had sued his manager who he claimed caused his financial ruin regarding those problems demanding $20m although the manager explained it was Cage's own fault and counter sued. It came out that Cage had bought $33m in real estate and 22 cars including 9 Rolls Royce. He had made $24 million in 2010 but needed to sell off many valuable assets he had in order to pay the IRS. 

He has another tax situation now as he was late with paying for tax that went well beyond his exclusion amount and would have been due years ago but he forgot to pay the taxes as he was required to after having given the gifts. 

This is another example of why this year is such a great year for the wealthy to pass along money to their friends and loved ones. Gift, Estate and Generation skipping taxes for this year and next year will be at a unified $5 million per taxpayer based on the agreement the President made with Congress and enacted into law.   

The tax rate is currently at 35% for gift taxes above the exemption amount. 

To see the TMZ.com breakdown of the amount of tax he owes for each year 2004-2009 click here

Tax arguments that the IRS will not accept. Fines for frivolous tax returns.

Americans have tried many arguments claiming not to be responsible for complying with the tax laws or subject to them. The IRS recently published its annual Truth About Frivolous Tax Arguments report, which discusses both the most popular arguments people have made over the years to avoid paying their taxes, but also the policy statements and inevitable tax court decisions the government has used to refute them.

"Anyone who contemplates arguing on legal grounds against paying their fair share of taxes should first read the 84-page document," the IRS said in a statement. Click link to read full report.

 Given the number of people who were filing frivolous returns claiming reasons not to be subject to the tax code in 2006, Congress increased the penalty for frivolous tax returns to $5,000 from $500. Filers typically present tax forms that show zero income or tax liability. Their reasons for not paying usually come up in tax court when the filers try to contest an audit or lien.

The arguments below are now considered frivolous by definition as they have repeatedly been heard and decided in the same manner. 

Tax filer argument: refusal to pay income taxes on religious or moral grounds.

The Supreme Court has frequently asserted that saying your religious beliefs are in conflict with the payment of taxes provides no basis for refusing to pay, though.

Tax filer argument: Paying taxes violates the Fifth Amendment.

The Fifth Amendment to the Constitution says a person shall not be "deprived of life, liberty, or property, without due process of law." The Supreme Court however stated in Brushaber v. Union Pacific R.R., 240 U.S. 1, 24 (1916), that "it is ... well settled that [the Fifth Amendment] is not a limitation upon the taxing power conferred upon Congress by the Constitution."

Tax filer argument: Taxes are a form of servitude in violation of the 13th Amendment.

Courts have repeatedly ruled that paying taxes is not considered forced servitude, calling the argument "clearly unsubstantial and without merit," as well as "far-fetched and frivolous."

Source: Yahoo News  by Mainstreet.

 

Republicans cut the IRS Budget. Commissioner calls them "Potentially Devastating"

The Internal Revenue Service Commissioner said Thursday that budget cuts proposed by Republicans would have "potentially devastating" impact on the nation's tax system, including a drop in enforcement revenue by $4 billion for the rest of this year.

The Republican-led U.S. House of Representatives passed a bill earlier this year to cut about $600 million from the IRS budget for the rest of 2011.

I.R.S. Commissioner Douglas Shulman said the cuts would lead to drops in customer service, processing and enforcement.

A major part of the agency's recent enforcement efforts involve going after wealthy tax cheats. The IRS is now combing through about 18,000 new returns from those who took part in a tax amnesty program for undeclared assets held abroad.

Republicans at the hearing focused on the impact of the tax code's complexity on business and individual taxpayers, the stated purpose of the hearing.

"Too often we all forget the enormous price in both time and dollars that the individual taxpayer has to pay to comply with the tax filing requirement," said Charles Boustany, the Republican chairman of the subcommittee holding the hearing.

The audit rate for businesses with assets below $10 million is less than 1 percent and for companies with more than $250 million in assets, about 23 percent of businesses are audited, Shulman said.

The biggest companies generally have IRS auditors on site throughout the year.

The IRS collects most of the government's revenue, about $2.3 trillion in 2009. Shulman also said the agency's enforcement role contributes to cutting the federal deficit.

"Our budget more than pays for itself and directly contributes to deficit reduction," he said.

Source: CNBC

 

 

 

 

Tax Audits of Millionaires on the rise. Funds collected from audits rose $57.6 Billion last year.

Blake Ellis of CNN Money reports that the IRS is getting far more aggressive especially among the very wealthy. 

Those who make more than $10 million as a grow saw their chances of a tax audit rise 73% last year and 18% of those taxpayers were audited according to the IRS released stats. 

"There's always been this public perception that the rich are getting away with murder and the poor guy is left footing the bill," said Thomas Cooke, professor of accounting and business law at Georgetown University. "It's true that historically the low income earner was more likely to be subject to an examination than a high income earner, but now the higher income taxpayer is getting the greater focus."

Taxpayers making between $5 million and $10 million were also under more scrutiny last year. The IRS examined nearly 12% of the returns it received from people in this tax bracket -- a 54% jump from the previous year.

Regular millionaires were in the crosshairs as well. Audits of taxpayers with income over $1 million increased 15% last year.

The move to crack down on millionaires comes as the IRS looks to boost revenue and to improve its image among average taxpayers who think the IRS favors the wealthy, said Cooke.

Because rich taxpayers can often afford to spend more money on tax preparers and accountants, the perception has been that they can cheat the system more easily than the average Joe who is doing his taxes with a company like TurboTax or on his own.

More audits of the wealthy mean more revenue for the tax agency; funds collected from auditing jumped 18% to $57.6 billion last year.

"The IRS is looking for additional sources of revenue, and the higher the income, the greater the potential reward when the IRS finds mistakes," Cooke said.

In fact, the IRS has even launched a unit to specifically monitor high income individuals, called the Global High Wealth Industry unit, which took effect last year.

But a jump in audits doesn't necessarily mean that the IRS will hit the jackpot immediately. Many audits aren't resolved for several years, so the IRS will need to gauge how much money the new enforcement efforts bring in over the next few years. And the agency is only likely to continue ramping up audits of the wealthy if a significant amount of money is collected as a result.

While millionaires were hit the hardest, the IRS boosted enforcement across the board last year. Overall, the IRS audited 1.58 million tax returns last year, or about 1.11% of all the returns it received.

So that means the chances of getting audited are still slim, but 8% higher than in 2009 and double what they were in 2001.  

 

Tax compromise to come to the floor in Congress Monday

Tom Cohen of CNN wrote an article today discussing that the tax compromise agreed to President Obama and the White House Administration and the Republican leaders in Congress will come to the floor despite threats to prevent it from Democratic leaders in Congress. 

Senate Dick Durbin of IL The # 2 leader in the Senate for the democrats said that "If we want to change Washington and move in the right direction we need to stand together and compromise so that he was supporting the bill. 

Among its provisions an extension of the Bush era Tax Cuts which the Congressional Budget Office scored as costing $400 Billion. $225 Billion worth in a 2% reduction to the payroll tax for a year. 

$57 Billion to extend the unemployment compensation provisions which have already been extended a few times for another 13 months and a $5 million dollar estate tax exemption with a 35% rate. 

Congressional Democrats point out that the estate tax change from $3.5 million which congressional democrats agreed to instead of the $1 million with a 55% rate that it was scheduled to go to up to $5 million exemption amount increase its cost from just $25 B for the 2 year term when it had a 45% rate to $68 Billion for the same two year period while only impacting 6600 families during that time. Congressman Paul Ryan a Republican however responded that the estate tax is currently 0 and is increasing to 35% and it is a compromise to move it that much and start the estate tax again but they would not lower the exemption amount. Congress will likely work out this tax dispute soon as it is coming to the floor tomorrow and there are only a few days remaining of the legislative term prior to the holidays and members of Congress going back to their districts. 

 

http://www.cnn.com/2010/POLITICS/12/12/tax.plan/index.html?hpt=T1

Amnesty for International Tax Cheats

Yahoo today reported an Associated Press article that the IRS is considering another program for taxpayers to bring assets back to the US and come clean about owing taxes regarding international income. They were extremely successful in getting around 15,000 people back as compliant taxpayers when they offered the program. The only catches are that the taxpayer must come forward themselves prior to being caught and they must have earned the money legally. This is typically offered to taxpayers who meet those conditions although only about 100 a year it applies to because they would then need to pay a substantial amount in interest and penalties as well as the tax the taxpayers do not come forward since the property - money they have over seas is less than the total of the interest and penalties but the IRS seeks this arrangement to get them back on the tax rolls and in compliance in future years. 

 

Proposed Federal Tax Law

As CNN reports President Obama announced an agreement in principle with GOP leaders in Congress which would provide that all taxpayers not merely those below $250,000 maintain the tax cuts. That there be a 2% payroll tax reduction and that the estate tax rates drop to 35% while the exemption amount is reinstated at $5m larger than it has ever been while there is an estate tax. These would be extended for 2 years. In return the GOP would allow unemployment compensation extended for another 13 months and not need to be paid for but be merely added to the deficit as Obama and Democrats would like. 

The article does mis state that the estate tax would go to a $3.5 million dollar exemption if no action were taken though. It would actually go to $1m if no action were taken for the estate tax exemption and the rates would be a lot higher. This has not also been agreed to by the Democratic legislative leaders yet though or the full GOP rank and file so it will be interesting to see what happens and there may still be a tax dispute in seeking to pass the legislation. 

New law helps Florida property owners dispute tax assessments

Joe Ruble reported of a change in Florida Property tax law where Florida Property owners do not have to prove that the assessment is wrong in which only 10% of those disputing their property tax assessment won their disputes in 2007 (other than Dade County) which had a different type of dispute process. The new law will allow allows taxpayers to merely bring more compelling evidence of their assessment in order to prevail with a change in their Florida property tax valuation. Florida Governor Charlie Crist said this was intended to bring fairness back to the Florida homeowners. For the full article see New law helps property owners dispute tax assessments.

IRS to hire 4500 more Revenue Agents. Dispute more returns.

The information below was from an email GiftLaw newsletter that was sent out this morning. The IRS is seeking to close tax gap and collect more with additional agents.

Interesting to note although they do not cite their source that the editors note says 85-88% of the total taxes that are owed are in fact paid and is one of the highest collection amounts in the world. It will be a $400 million dollar increase in the IRS budget.

 

IRS to Hire 4,500 New Revenue Agents
In the 2010 budget proposed by President Barack Obama, there is an increase of $400 million dollars for the IRS. The IRS plans to increase its enforcement budget to $5.5 billion out of the total $12.12 billion IRS budget.

IRS Commissioner Douglas Shulman has been emphasizing the importance of greater enforcement as a method of closing the "tax gap." Increased IRS funds will enable the hiring of 4,500 new revenue agents. IRS Deputy Commissioner Linda Stiff noted that these new agents are the "largest hiring initiative" in recent years.

Treasury Secretary Tim Geithner indicated, "This budget will also expand job-creating investments in local communities, strengthen our nation's security through financial intelligence, launch new initiatives to enforce the tax code and provide the recourses to address global economic challenges." The new IRS accountants, economists, statisticians and revenue agents are part of an ongoing program by President Barack Obama and Secretary Geithner to close the tax gap.

Editor's Note: With the record budget deficits, Washington faces three financial options. The first is to increase taxes, the second to reduce spending and the third to increase tax law enforcement. Because the taxpayers of the United States are among the most honest in the entire world and pay 85% to 88% of the total taxes due, it will be difficult to close the budget gap merely through greater enforcement. However, the current administration is clearly going to make an effort to increase tax revenues with 4,500 new IRS agents.