On April 15, President Obama addressed the nation on the issue of tax simplification.
The Wall Street Journal article indicated one proposal under consideration would exempt up to 40% of Americans from having to file a tax return. After contacting the article's authors, I learned that the plan was written by Austan Goolsbee and adopted by the Obama campaign.
Titled "The Simple Return" plan, the proposal would not actuallyexempt up to 40% of Americans from filing a return. Rather, it would make it so the only action required by the average taxpayer would be "checking the numbers, signing the return, and then either sending a check or getting a refund."
A few of the key points in the plan:
- The proposal assumes the tax law remains as is, with the same mass of deductions, credits, exemptions, and so forth.
- The program would be voluntary. Anyone who preferred to fill out his own tax form, or to pay a tax preparer to do it, would just throw the Simple Return away and file his taxes the way he does now.
- The IRS would prepare a "Simple Return" with the data it receives from employers and banks (including froms W-2, 1099, and 1098), which the taxpayer could then just review and sign.
- California has already implemented a pilot program of the "Simple Return" plan, which it calls "Ready Return."
I have just read this over in the last couple of days, so I'm far from qualified to render an expert opinion. Still, I'll go ahead an render my inexpert one:
This seems to be a valiant effort to make the existing system more manageable for the average taxpayer. But it treats the symptoms rather than the disease. The real problem is the complicated, convoluted, mind-numbing tax law.
Rather than trying to lessen the headache of working within a broken system, let's try to fix the system itself.
Unfortunately, that's where my "wisdom" (or foolishness, depending on who you ask) runs out. I hope to read more about others' ideas for real tax reform over the summer. Stay tuned.
The IRS recently published its Strategic Game Plan for 2009-2013. The mission of the IRS is to: "Provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all."
The plan spells out 2 overarching goals for the next 5 years:
Goal 1: Improve service to make voluntary compliance easier.
Goal 2: Enforce the law to ensure everyone meets their obligations to pay taxes.
A few specified objectives for meeting these goals are to:
- Consider the taxpayer's perspective
- Improve issue resolution
- Make it easier to navigate the IRS
- Provide targeted, timely guidance and outreach
- Strengthen partnerships with tax practitioners
- Proactively enforce the law
- Respect taxpayer rights and minimize taxpayer burden
- Expand enforcement approaches and tools
- Target emerging high-risk areas
So what does this mean?
Obviously, I don't know for sure. My psychic powers are nonexistent. And I've never worked at the IRS, I've only dealt with the IRS.
Based on what I know (which, admittedly, may not be a lot), these are my suggestions to my fellow taxpayers:
- Try to get it right the first time. The best way to avoid trouble with the IRS is to file accurate, on-time returns.
- Don't expect leniency. One of the many rules I live by is to hope for the best, but plan for the worst. For several years, we've been told we'll be seeing a "kinder, gentler" IRS. However, many (perhaps even most) tax practitioners and taxpayers have not found this to be the case. In January this year, the National Taxpayer Advocate reported to Congress that the IRS is too harsh. The hard-line enforcement was identified as the second biggest problem facing taxpayers (with tax complexity being the first). This leads to my next suggestion for those facing tax trouble...
- Consider your options. In general, you can't completely avoid paying a tax debt, but you can work to minimize interest and penalties, and can work out agreements to pay over time. Tax attorney Peter Pappas provides a great summary of theforms of tax relief. We've all seen the commercials where people claim: "I owed $60,000, but this company made it so I didn't pay anything!" In reference to these types of claims, I recently heard an IRS representative respond simply that you'll only have that kind of debt forgiveness if you really have absolutely no assets available to pay. Now, I have no expertise in bankruptcy law, so I can't comment on when taxes can be discharged in bankruptcy. I can refer you to another post byPeter Pappas.
- Be proactive. If you have not paid your taxes, your situation will not improve if you just wait. Those problems do not just go away. The IRS can take a long, long time to move forward with an issue (so painfully long) -- but if you owe money, they will get to it sooner or later. And they will add penalties and interest. You'll be much better off if you hire a tax professional to take proactive steps to resolve the problem.
I would be very happy to see the IRS be successful in meeting the goals outlined in its Strategic Plan, as that would help the average, honest taxpayer and tax professional. It would not help the average tax cheat, which sounds good to me, since tax cheaters make my tax bill higher.
We'll see how the next 5 years go. For now, I'll just keep working to help my clients navigate the existing system, painful as it is.
Since this blog is about tax developments, it will include government news. I hope the reader (if there is a reader out there) will not find it terribly partisan. I don't think of myself as political, as I tend to only read news about the economy and tax policy. (Although I did hear about the swine flu. My bubble is not entirely impermeable.)
Of course, I've got opinions. And I'm usually too quick to share them. In the spirit of full disclosure, I figured I'd share my philosophy on taxes. And I hope that I'm not breaking any copyright laws by stealing the idea from Tax Attorney and CPAPeter Pappas.
- Everyone should pay their taxes. “Taxes are what we pay for civilized society.” (U.S. Supreme Court Justice Oliver Wendell Holmes). “Taxes, after all, are dues that we pay for the privileges of membership in an organized society.” (Franklin D. Roosevelt)
- No one should pay more than they are required. “The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted.” (US Supreme Court, Gregory v. Helvering, 55 S Ct. 266, 1/7/1935)
- Figuring out your taxes shouldn't be so hard. The average taxpayer should be able to figure out their taxes, since the average taxpayer has to pay them.
- Raising taxes won't fix all our problems. If we are to encourage innovation, industry, and entrepreneurship, we must let people keep most of their income.
So that's my philosophy in a nutshell.
Back to tracking tax developments...
The President spoke today of his administration's plans to increase the amount of taxes paid by U.S.-based multinational corporations.
He began his remarks with this statement: "Let's begin with a simple premise: Nobody likes paying taxes, particularly in times of economic stress. But most Americans meet their responsibilities because they understand that it's an obligation of citizenship, necessary to pay the costs of our common defense and our mutual well-being."
Agreed!
Here are a few key statements he made:
- "For years, we've talked about shutting down overseas tax havens."
- "I'm asking Congress to pass some commonsense measures."
- "These and other reforms will save American taxpayers $210 billion over the next 10 years."
- "We're beginning to restore fairness and balance to our tax code."
So what is the plan?
(1) Replacing Tax Advantages for Creating Jobs Overseas With Incentives to Create Them at Home
- Reforming Deferral Rules to Curb A Tax Advantage for Investing and Reinvesting Overseas
- Closing Foreign Tax Credit Loopholes
- Using Savings To Make Permanent The Tax Credit for Investing in Research and Experimentation at Home
(2) Getting Tough on Overseas Tax Havens
- Eliminating Loopholes for "Disappearing" Offshore Subsidiaries
- Cracking Down on the Abuse of Tax Havens by Individuals
- Devoting New Resources for IRS Enforcement to Help Close the International Tax Gap
What's next?
We'll see how this all plays out with Congress. Here are a few links for more on the story...
The Tax Lawyer's Blog: Obama Vows to Close Foreign Tax Loopholes
CNN Money: Obama plans corporate tax crackdown
Tax Lawyer's blog post today includes tournament brackets for "Tax Madness: All Time Greatest Code Section."
Isn't the term "tax madness" redundant?
Anyhow, this is a fun exercise for us tax geeks. Pappas asks at the end of the post: "What code section do you think is the 'greatest?' "
Being obsessed with detail as I am, I immediately thought: "Well, what do you mean by greatest? Greatest in terms of saving taxpayers money, generating tax revenue, collecting tax revenue, or another definition altogether?"
I drove my professors crazy in college, as you can imagine. ("But what do you mean by this question?" "What if this exception applies?" "What if I read it this way instead?")
Pappas suggests the greatest code section is 3402, reasoning that: "Withholding is the chief administrative mechanism enabling the federal government to collect, without significant protest, sufficient private resources to fund an ever-expanding government."
So I agree that this is the greatest section in terms of tax collection.
I'm thinking "greatest" in terms of the impact on taxpayers, whether for good or ill. And though one could argue that the withholding section has the greatest impact, my inclination would be to crown the code section that imposes the tax in the first place. In general, that's code section 61 (which Pappas named as the runner-up to 3402).
Section 61 says: "Except as otherwise provided in this subtitle gross income means all income from whatever source derived."
Everything is taxable, unless we give you a special hall pass to exclude it. Casts a pretty wide net, eh?
Joe Kristan wrote today about a troubling development in Ohio, my current state of residence: "The insane desire of states to subsidize Hollywood has spread to Ohio, where lawmakers are poised to subsidize 25% of the cost of films shot there. That's precisely half as stupid as Iowa's 50% tax-credit subsidy."
Why, as Joe asks, are we using taxpayer dollars to subsidize the film industry?
I realize the film industry employs a lot of people who are not famous or rich, including crew members, costumers, set builders, etc. But doesn't virtually every industry employ people who are not famous or rich? Why should all these others be forced to support the film industry?
If the film folks are not making money under current conditions, they need to deal with it. Try something new, call it quits, whatever. But don't demand taxpayer dollars.
I'm not being hypocritical in arguing that industries should adapt to the realities of the market. I recently posted about the misconception so many people have about tax professionals: that we all oppose tax simplification because complexity means job security. (The Wandering Tax Pro, Robert Flach, recently posted about this as well.)
The President has promised to simplify the tax code, and he set up anadvisory board. Under the "let's save any industry in trouble" philosophy, I need to go to my legislatures and demand a "tax professionals credit" if the President is successful in making the tax law simpler.
Any lobbyists out there who want to help save the tax professionals? If you're not too busy getting film credits for Hollywood, that is.
"A Texas restaurant owner has been sentenced to two years in jail after he was convicted of trying to bribe an IRS agent by offering her free pizza and a job."
When the agent first figured the taxpayer was offering her a bribe, she reported it.
Subsequent conversations were recorded, during which the taxpayer "offered the agent $2,500 and delivered $2,000 in exchange for having his tax liability reduced from $49,000 to around $500. In addition to financial compensation, [he] repeatedly offered the agent pizza from his restaurant as part of the deal."
If she had taken the bribe, that could have led to one heck of an advertising campaign: "Our pizza is so good, people will destroy their careers and go to jail to get it!"
Unfortunately for the owner, I guess the pizza just wasn't good enough.
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