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Millionaire Now! by Larry NusbaumThis blog is based on the organizational principles found in my new book, "Millionaire Now! - A Financial Toolbox with Seven Steps to Wealth". |
HOW THE IRS TRIES TO MAKE YOU DIE POOR
Posted on 10/29/2006 08:22 AM | Link | Post Comment
by Daniel J. Pilla
The United States is engaged in a debate which promises to be long and emotional. Before it is over, it will pit Americans against one another in a battle of class warfare such as this nation has probably never seen. The debate is over tax reform. The question is who should pay and in what amounts. At issue is the level which constitutes the "fair share" of tax one should pay.
This report attempts to answer these and other pivotal questions and proposes solutions to our nation's tax ills. The solutions address steps we can take at both the national level and the individual level to solve tax policy and enforcement problems that plague a cross-section of society.
Our Tax System is a Mess
In April, 1997, at the invitation of The Heritage Foundation and Americans for Tax Reform, two Washington DC, public policy institutes advocating radical reform of our tax system, I appeared in Washington to address a congressional policy forum at the US Capitol. In my discussion of the problems with the IRS and the tax code, I spoke extensively on the four areas of tax law administration in which the IRS has a deplorable record. The four areas are computer notices, audits, penalty assessments and tax assessments in general. Using some of the data I presented in Washington, let me highlight these concerns, one issue at a time.
1. Notices. Each year the IRS issues about 60 million notices communicating with citizens about their tax accounts. The notices cover approximately $200 billion in account transactions. Since this works out to around $3,300 per notice, I am sure you will agree this is no small matter.
2. Audits. Each year, the IRS runs about 2 million citizens and businesses through a face-to-face audit. (Virtually all tax returns filed are examined through a computer-audit process. That is one of the reasons so many notices are mailed by the IRS each year.) In 1995, its audits of 1.91 million individual tax returns resulted in additional assessments of about $7.75 billion in taxes, penalties and interest. That translates to about $4,000 per tax return. Just 11 percent of those audited were given a clean bill of health while 89 percent were said to owe more money.
3. Penalties. There are over 140 different penalty provisions in the tax code and the IRS uses them with reckless abandon. Each year, the agency assesses about 34 million penalties against individuals and businesses. Generally, businesses carry the heaviest load when it comes to penalties because so many of the provisions relate to withholding and tax deposits. The IRS can and routinely does issue thousands of penalties against businesses whose actual taxes are paid in full. The penalties relate only to some procedure blunder regarding the payment process.
4. Tax Assessments. An assessment is created when the IRS determines that one owes taxes. Once the assessment is made, if the tax is not paid upon notice and demand, the IRS may resort to all of its enforced collection tools to secure payment. These include the potent weapons of the lien, levy and seizure.
Reasonable people repeatedly ask, "Why can't the tax laws be more simple?"
The answer is they can be more simple. The reason they are not is Congress uses the tax laws for reasons other than that for which they were intended. It is the hybridization of the tax laws which accounts for the complexity of the system. This manifests itself in two prominent ways.
Read on.
The United States is engaged in a debate which promises to be long and emotional. Before it is over, it will pit Americans against one another in a battle of class warfare such as this nation has probably never seen. The debate is over tax reform. The question is who should pay and in what amounts. At issue is the level which constitutes the "fair share" of tax one should pay.
This report attempts to answer these and other pivotal questions and proposes solutions to our nation's tax ills. The solutions address steps we can take at both the national level and the individual level to solve tax policy and enforcement problems that plague a cross-section of society.
Our Tax System is a Mess
In April, 1997, at the invitation of The Heritage Foundation and Americans for Tax Reform, two Washington DC, public policy institutes advocating radical reform of our tax system, I appeared in Washington to address a congressional policy forum at the US Capitol. In my discussion of the problems with the IRS and the tax code, I spoke extensively on the four areas of tax law administration in which the IRS has a deplorable record. The four areas are computer notices, audits, penalty assessments and tax assessments in general. Using some of the data I presented in Washington, let me highlight these concerns, one issue at a time.
1. Notices. Each year the IRS issues about 60 million notices communicating with citizens about their tax accounts. The notices cover approximately $200 billion in account transactions. Since this works out to around $3,300 per notice, I am sure you will agree this is no small matter.
2. Audits. Each year, the IRS runs about 2 million citizens and businesses through a face-to-face audit. (Virtually all tax returns filed are examined through a computer-audit process. That is one of the reasons so many notices are mailed by the IRS each year.) In 1995, its audits of 1.91 million individual tax returns resulted in additional assessments of about $7.75 billion in taxes, penalties and interest. That translates to about $4,000 per tax return. Just 11 percent of those audited were given a clean bill of health while 89 percent were said to owe more money.
3. Penalties. There are over 140 different penalty provisions in the tax code and the IRS uses them with reckless abandon. Each year, the agency assesses about 34 million penalties against individuals and businesses. Generally, businesses carry the heaviest load when it comes to penalties because so many of the provisions relate to withholding and tax deposits. The IRS can and routinely does issue thousands of penalties against businesses whose actual taxes are paid in full. The penalties relate only to some procedure blunder regarding the payment process.
4. Tax Assessments. An assessment is created when the IRS determines that one owes taxes. Once the assessment is made, if the tax is not paid upon notice and demand, the IRS may resort to all of its enforced collection tools to secure payment. These include the potent weapons of the lien, levy and seizure.
Reasonable people repeatedly ask, "Why can't the tax laws be more simple?"
The answer is they can be more simple. The reason they are not is Congress uses the tax laws for reasons other than that for which they were intended. It is the hybridization of the tax laws which accounts for the complexity of the system. This manifests itself in two prominent ways.
Read on.
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