LTE: This is how the IRS wastes your money

[JonM]

http://www.concordmonitor.com/apps/pbcs.dll/article?AID=/20061107/REPOSITORY/611070357/1017/48HOURS

Okay, I accept that the only certainties in life are death and taxes. But is this ridiculous or what?

On the same day I received in the mail a notice that there was still $7.19 due on my son's 2005 tax return and a notice that there was a credit of $3.69 for his 2004 return. I opened these because since I handle his finances and taxes, and I have his permission. These notices contained about 12 sheets of paper each and instructions on what to do.

I'm not a math genius (obviously neither is the IRS), but this would wash out to him owing $3.50.

Yeah, you say, so what? But this is not the best part.

The IRS graciously included the following statement on the $3.69 credit: "We reduced your account balance to zero because the amount owed was so small." ---ADVERTISEMENT---   


On the $7.19 balance he owed, the IRS said: "If we receive your payment by November 27, 2006, we will not charge additional penalty and interest."

Hmmm, they wipe out the $3.69 they owe him but expect him to pay $7.19.

I wrote back to the IRS regarding the $7.19 with the following statement: "I reduced his account balance to zero because the amount owed was so small."

I'm guessing an arrest warrant will be issued for my son for tax evasion sometime around 2008, but I can live with that just to make my point. Them again, I won't be the one going to jail for failing to pay $3.50 to the government. I hope my son shares my great sense of humor.

Does anyone know if you can be arrested for sending a smart-aleck response to the IRS? Probably not, since I recently read that there is some $30 million due the IRS from people who haven't paid any taxes for years. They must be really busy wasting paper and sending notices to those people so perhaps I'll be overlooked.

If not, perhaps my son and I can be sent to a co-ed prison where we can while away the hours researching how we can advise the federal government on how to waste more natural resources and time and money so as to further take advantage of more hardworking, taxpaying citizens.

(Judy Paris lives in Bradford.)

[Russell Kanning]

ahhhhh good ol income taxes

[Dreepa]

I read this at 5am this morning an it made me smile.

Russell you should call her... She might join you at the IRS building.

[error]

She's WAY off on the "people who haven't paid any taxes for years."

The tax gap, last I checked, was somewhere around $285 BILLION.

[Dave Ridley]

only sixty percent of americans pay the income tax

[Quantrill]

I want to be one of the 40 percent...

[anthonybpugh]

Things like this are going to start getting worse.  I'm working on a paper about a new program the IRS is implimenting.  Over the last 10 or so years their workload has increased while the number of IRS employees, including the Field Compliance division has decreased.  (I'm trusting the IRS source on this, haven't yet independently verified this)  There are several billions worth of small amount delinquent tax 'debts' that the IRS doesn't have the manpower to collect.  The new program is going to be turning over low amount accounts like this over to private debt collectors, that way they can concentrate on the bigger 'offenders'. 

The government is worried that there isn't enough voluntary compliance. 

[aries]

I cant wait until I'm self employed

Taxes? What taxes, for all the IRS will ever know, I've been jobless ever since I became so great at simply finding money lying around. That's it... yeah 

[Spencer]

Things like this are going to start getting worse.  I'm working on a paper about a new program the IRS is implimenting.  Over the last 10 or so years their workload has increased while the number of IRS employees, including the Field Compliance division has decreased.  (I'm trusting the IRS source on this, haven't yet independently verified this)  There are several billions worth of small amount delinquent tax 'debts' that the IRS doesn't have the manpower to collect.  The new program is going to be turning over low amount accounts like this over to private debt collectors, that way they can concentrate on the bigger 'offenders'. 

The government is worried that there isn't enough voluntary compliance. 

The private debt collector thing is real:

The American Jobs Creation Act of 2004 authorized the IRS to contract with private firms to collect some outstanding tax debts.
http://www.irs.gov/newsroom/article/0,,id=161179,00.html

Some uncollected tax debts will be assigned to three private collection firms starting Thursday, Sept. 7. The IRS said 12,500 taxpayers will be included in the first group, with about 40,000 accounts to be outsourced by the end of the year.
http://www.govexec.com/dailyfed/0806/083106m1.htm

Although some of the news stories that I read about the Democratic sweep in the elections quoted from the Democratic leadership saying that this program is one of the things that they would reverse ASAP.

[error]

The sheer irony here is that it will cost more for the private companies to do it than for the government to do it itself!

[anthonybpugh]

The IRS has written a large number of accounts off as uncollectable.  They are too low value to justify sending agents out in an attempt to collect.  I don't think anything over $5000 is being sent to any of these companies.  This is written off already so while it would be cheaper if govt employees were collecting it, they simply are not. 

That is also assuming that the reason for collecting this money is simply to increase government revenue.  There are two reasons for this program (besides the accusation of cronyism) that is to 1)increase revenue and 2) ensure voluntary compliance.  I think the government is more concerned about voluntary compliance than they are with revenue.  They are afraid that if people start getting away with not paying small tax bills, you will start seeing more and more people not paying their taxes.  They value enforcement of the tax code a hell of a lot more than the revenue collected in this program.  They just figure tax farming is the easiest way to do that for right now. 

The other option which the Democrats would probably prefer is to simply hire a hell of a lot more IRS agents.       
--------------

This is a question that I have.  Tax Farming is being practiced in many states throughout the country.  So far I have been able to identify only a few of them like North Carolina, New York, Texas and Connecticut.  Does New Hampshire allow the state and local governments to engage in tax farming?   Is it legal for a city or county in NH to contract out the collection of taxes to a private firm?

[David]

error, I didn't realize the noncompliance was so high.  wow.
I personally don't like the womans approach.  I like her cockiness, but she now has a definite paper trail.  If the irs decides to make an example out of her, (assuming they can handle the publice ridicule) she has made the case against herself for the gov't.  That is my biggest concern with the tax honesty movement that still files returns. 

[error]

Here's the latest:

http://www.gao.gov/new.items/d061000t.pdf

The tax gap--the difference between the tax amounts taxpayers pay voluntarily and on time and what they should pay under the law--has been a long-standing problem in spite of many efforts to reduce it. Most recently, the Internal Revenue Service (IRS) estimated a gross tax gap for tax year 2001 of $345 billion and estimated it would recover $55 billion of this gap, resulting in a net tax gap of $290 billion. When some taxpayers fail to comply, the burden of funding the nation's commitments falls more heavily on compliant taxpayers. Reducing the tax gap would help improve the nation's fiscal stability. For example, each 1 percent reduction in the net tax gap would likely yield $3 billion annually. GAO was asked to discuss the tax gap and various approaches to reduce it. This testimony discusses to what extent the tax gap could be reduced through three approaches--simplifying or reforming the tax system, providing IRS with additional enforcement tools, and devoting additional resources to enforcement--as well as various factors that could guide decision-making when devising a strategy to reduce the tax gap. This statement is based on prior GAO work.

Simplifying the tax code or fundamental tax reform has the potential to reduce the tax gap by billions of dollars. IRS has estimated that errors in claiming tax credits and deductions for tax year 2001 contributed $32 billion to the tax gap. Thus, considerable potential exists. However, these provisions serve purposes Congress has judged to be important and eliminating or consolidating them could be complicated. Fundamental tax reform would be most likely to result in a smaller tax gap if the new system has few, if any, exceptions (e.g., few tax preferences) and taxable transactions are transparent to tax administrators. These characteristics are difficult to achieve, and any tax system could be subject to noncompliance. Withholding and information reporting are particularly powerful tools to reduce the tax gap. They could help reduce the tax gap by billions of dollars, especially if they can make currently underreported income transparent to IRS. These tools have been shown to lead to high, sustained levels of taxpayer compliance. Using these tools can also help IRS better allocate its resources to the extent they help IRS identify and prioritize its contacts with noncompliant taxpayers. As GAO previously suggested, reporting the cost, or basis, of securities sales is one option to improve taxpayers' compliance. However, designing additional withholding and information reporting requirements may be challenging given that many types of income are already subject to reporting, there are many forms of underreporting, and withholding and reporting requirements impose costs on third parties. Devoting additional resources to enforcement has the potential to help reduce the tax gap by billions of dollars. However, determining the appropriate level of enforcement resources for IRS requires taking into account many factors such as how well IRS is currently using its resources, how to strike the proper balance between IRS's taxpayer service and enforcement activities, and competing federal funding priorities. If Congress decides to provide IRS more enforcement resources, the amount the tax gap could be reduced would depend on factors such as the size of budget increases, how IRS manages any additional resources, and the indirect increase in taxpayers' voluntary compliance resulting from expanded enforcement. Increasing IRS's funding would enable it to contact millions of potentially noncompliant taxpayers it identifies but does not have resources to contact. Finally, using multiple approaches may be the most effective strategy to reduce the tax gap, as no one approach is likely to fully and cost effectively address noncompliance. Key factors to consider in devising a tax gap reduction strategy include periodically measuring noncompliance and its causes, setting reduction goals, leveraging technology, optimizing IRS's allocation of resources, and evaluating the results of any initiatives.

[anthonybpugh]

Here's a good book.
http://www.amazon.com/Good-Evil-Impact-Course-Civilization/dp/1568331231

Anyways, one of the points made in the book was how the level of voluntary compliance to a tax system can give you a good indication of the level of support the people have for it.  If you begin to see rampant noncompliance, efforts to enforce the tax code will be counter-productive.  An effort to crack down on tax evasion will likely result in resistence. 

Something else that has been observed is that when people view a tax as being fair and not very burdensome, they will pay.  You will not begin to see a lot of avoidance and evasion until it becomes a burden and viewed as unjust.  If there is massive noncompliance, that only means that enforcement will increase the sense of the tax system being a burden and increase the perception that it is unjust. 

I don't think the politicians in Washington realize that a lot of great nations and empires were brought down because they were ruined by their tax system. 

[Russell Kanning]

When some taxpayers fail to comply, the burden of funding the nation's commitments falls more heavily on compliant taxpayers. Reducing the tax gap would help improve the nation's fiscal stability.

Looks like a road map for success.