Can filing your tax return be easier than ordering a pizza?

President Obama thinks there is a technology gap between the public sector and the private sector.  He says filing a tax return should be as easy as ordering a pizza.  See this Wired article.

President Obama's comments raise the question: is the tax code too complex?  Earlier in the Presidential Race, Senator Ted Cruz advocated abolishing the IRS and filing a tax return on a post card.  See my earlier blog post.

Likewise, as stated in the prior post, the IRS already has a simple filing procedure.  See this earlier blog post.  See also US News article about whether you should file your own tax returns.  Even TurboTax has its own app.  So do we need filing tax returns to be any simpler?

Perhaps the President meant to say that we should have a flat tax rate? This blog previously addressed the flat tax rate debate with Senator Cruz' proposal.  See also this International Monetary Fund (IMF) whitepaper about the success of a flat tax (paper summarized that in most cases the flat tax failed to raise additional revenue, with the exception of Russia).  Also the paper states that in most cases because of a switch to a flat tax, many of the countries had to enact changes to eliminate exemptions to the personal income tax system and VAT system and increase excise taxes.  The whitepaper also concludes that the sustainability of the flat tax is still indeterminable, usually because enacting the flat tax was a result of a political change of regime.

Or perhaps the President meant to discuss the tax rates corporate income tax structure in the U.S.  One prevalent discussion point is whether the U.S. should lower its corporate tax rates to match other industrial nations and to curb U.S. Multinational Corporations from using inversions, transfer pricing and earnings striping to shift the tax burden to a lower tax jurisdiction.  See this Tax Policy article. 

Or perhaps the President meant to discuss the tax rates for individuals and where to place the tax burden.  As discussed in this blog, the Presidential race appears to be a debate over who should we tax and give tax cuts (Rich vs. Poor).  Also in the same blog, I highlight how Clinton's tax plan will likely be more complex.  What people forget is that complexity is what allows people to get tax breaks.  The so-called loopholes in the code are designed to allow people to legally avoid paying tax on income, without resorting to tax shelters.  See this IRS site for list of tax shelters.

Or perhaps the President is discussing the tax gap (estimated $458 Billion dollars) and how technology might assist the IRS in enforcement.  See this IRS presentation addressing the tax gap and how the IRS is combatting the tax gap.  Noteworthy is that the IRS' presentation proposes to simplify the code to ensure compliance.  Is the IRS' efforts to combat the tax gap being hampered by the continual decrease in the IRS budget?  See this Center on Budget and Policy Priorities article on IRS budget cuts.

If better enforcement is the issue, and given the IRS' budget cuts, the bigger question is why isn't the IRS utilizing the Whistleblower program it has to ensure better compliance.  See my colleague's blog, about whether the IRS really supports its whistleblower program.

If you have specific and credible evidence of taxpayers failing to file their tax returns and/or paying their tax liabilities in excess of $2 million of taxes, interest and penalties, you should consider filing an IRS tax whistleblower claim.  Contact us to assist you in filing your tax whistleblower claim to received an award of between 15-30% of the amounts collected by the IRS on tax liabilities in excess of $2,000,000.

TIGTA-2016-26 Press Release

October 24, 2016
TIGTA-2016-26
Contact: Karen Kraushaar, Director of Communications
Karen.Kraushaar@tigta.treas.gov
(202) 622-6500

The Whistleblower Program Helps Identify Tax Noncompliance; However, Improvements Are Needed to Ensure That Claims Are Processed Appropriately and Expeditiously

 WASHINGTON — The Internal Revenue Service (IRS) Whistleblower Program can be a powerful tool to assist the IRS in identifying violations of tax law and collecting funds that might otherwise be lost to tax evasion.  However, improvements are needed to monitor the timeliness of whistleblower claims processing and ensure that program decisions are properly supported, according to a new report issued publicly today by the Treasury Inspector General for Tax Administration (TIGTA).

Internal Revenue Code Section 7623 authorizes the IRS to pay monetary awards to whistleblowers for information leading to detecting underpayments of tax or bringing to trial and punishment persons guilty of violating tax laws.  However, whistleblowers and members of Congress continue to express concerns with the operation of this program.

In its review, TIGTA found that the Whistleblower Program has helped the IRS collect significant amounts of revenue by facilitating whistleblower claims reporting violations of the tax laws that may otherwise go unidentified.  From Fiscal Year 2011 through February 2016, the IRS collected more than $2 billion because of information that whistleblowers provided.  In addition, the Whistleblower Office has recently reduced inventory backlogs.  However, the Whistleblower Office does not have appropriate controls in place to allow for sufficient oversight of claims processing, and whistleblowers are not always contacted to clarify allegations.

TIGTA recommended that the Director, Whistleblower Office, implement the Balanced Performance Measurement System for the Whistleblower Program and implement controls to ensure that whistleblower claims are appropriately and timely evaluated before being rejected, denied, or referred to operating divisions for investigation or examination.  In response to the report, IRS management agreed with and plans to implement corrective actions for nine of TIGTA’s 10 recommendations.

“The IRS Whistleblower Program plays an important role in reducing the Tax Gap by providing an avenue for reporting tax evasion,” said J. Russell George, Treasury Inspector General for Tax Administration.  “It is important for the IRS to make every effort to implement controls to ensure the consistent, appropriate, and expeditious processing of whistleblower claims.”

Read the report.

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Note: The difference between the date TIGTA issues an audit report to the Internal Revenue Service and the date TIGTA publicly releases the report is due to TIGTA's internal review process to ensure that public release is in compliance with Federal confidentiality laws.

Taxes and the Presidential Race

With the popular vote for President looming, there has been great debate over each candidate’s tax policy and the potential impact of their proposals. This blog has even attempted to outline the tax policies and provide analysis of the proposals. 

Recently, as found in this Forbes article, the candidates had their tax advisors debate their respective policies at the Tax Policy Center sponsored debate on October 13, 2016. 

As summarized by Forbes, Clinton’s plan would: “create new subsidies for working families that are caring for aging parents or children or have large medical expenses, significantly raise taxes for high-income households and businesses, and only modestly reduce the deficit.  See Tax Policy Center’s analysis of the Clinton tax plan.

Contrasting this is Trump’s plan, as summarized by Forbes, would: “reduce revenue by $6.2 trillion over 10 years, without accounting for macroeconomic effects and added interest costs. It would cut taxes for most households, but focus the great bulk of its tax reductions on the highest income households. Under his plan the highest income 1 percent of households would enjoy nearly half of the benefits of his tax cuts.”  See Tax Policy Center’s analysis of the Trump tax plan.

Criticism of Donald Trump’s Plan:

According to a NYU tax law professor’s paper, Lily Batchelder’s, Trump’s plan would increase the tax liabilities of “millions of low and middle income families with children [namely, 7.8 million families with minor children], with especially large tax increases for working single parents” See also this Washington Post article outlining the problems with Trump’s plan. 

Ms. Batchelder’s position is that by removing personal exemption in Trump’s plan, Trump’s plan would actually increase the tax burden on married persons with at least 3 children, and unmarried persons with 1 child.  She also argues that removing the head of household status would increase the tax burden on unmarried persons with one dependent. In addition to removing the personal exemption and head of household filing status, Ms. Batchelder argues that the bracket increase of the lowest tax bracket would increase the tax burden on all taxpayers for the first “$9,000 to $18,000 of their taxable income.  Finally, Ms. Barchelder discredits the Trump plan’s estimate of saving because as she argues the deduction and credit for child care won’t be effective for low and middle income families because even with the deduction and credit, the deduction and credit fail to compensate the families for the increased tax burden attributable to the other Trump proposals.

Contrasting Ms. Batchelder’s position is Steven Miller’s (Trump national policy director) analysis, which can be found in the Washington Post article.  According to Mr. Miller, Ms. Batchelder’s analysis fails to properly account for the $500 per child match for child care credit proposed under the Trump plan.  Mr. Miller also states that another error in Ms. Batchelder’s analysis is that it fails to account for the “effects of the tax-free spending on both children and elderly dependents that is addition to either the new deduction or those in the current law.”  Mr Miller also stated that the Ms. Batchelder’s analysis fails to account for the benefits to economic growth which will be generated by the Trump plan. Finally, Mr. Miller stated that the Trump plan would instruct the the Congressional committees implanting the changes to ensure that the Trump plan does not raise the taxes on law or middle income earners.

Criticism of Clinton’s Tax Plan:

While analysts have stated that the Clinton plan would increase taxes on the rich and big business, one key criticism is that the Clinton plan would further complicate the tax code instead of making the tax code simpler.   See this NY Times article.  As stated in the article, Clinton’s plan wouldn’t eliminate the loopholes, which Trump has taken advantage of (allegedly not paying taxes on his income due to carryover losses, see this NY Times article).

Another criticism of Clinton’s plan it that it isn’t a sweeping overhaul of the tax code.  As stated by Alan Cole, an economist with the Tax Foundation policy center, “It‘s more tinkering at the edges,I wouldn’t call it reform. There aren’t any major reformulations to make the code simpler or fairer. It’s basically just a tax increase” for the top income bracket.  See this NY Times article.  Clinton’s plan also fails to address the corporate tax rate (at 35%, one of the highest in the developed world) and proposes a change to capital gains to encourage corporate governance changes instead of addressing corporate governance through targeted legislative policy changes.  See this NY Times article.

Conclusion:

No matter which candidate you support, there are two stark contrasts to their tax policies: One is choosing to tax the über rich while keeping most of the existing taxing structure and using the additional revenue for social programs [CLINTON].  While the other candidate is choosing to lessen the burden on the top to spur economic growth, and instead place the burden on the middle and lower class [TRUMP].

The question that continues to loom is how will these policies affect the IRS and their enforcement of the code, post-election.

If you know of someone not paying their taxes (a minimum of $2,000,000 in taxes) and want to report the individual/corporation for this failure, Contact us to file a claim for an award from the IRS.  The IRS will pay an award (between 15-30% of the taxes collected) for specific and credible information the IRS uses in assessing additional tax liability against taxpayers.