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.

Could Congress be Gearing up for Real Tax Reform?

As noted in the Wall Street Journal, the Senate Finance Committee Democrats have named a new co-chief tax counsel.  Victor Fleischer, a law professor with the University of San Diego, was named the new co-chief tax counsel.  FYI, Fleischer is best known for a law review article which examines the taxing of private equity funds, and according to the Wall Street Journal, started the debate on how fund managers are taxed.  See the article here.  The WSJ article names several sources that commented that if Congress does choose to begin true tax reform, this post would be quite influential.

In case you didn't know, fund managers are paid via the "two and twenty" rule meaning that they take a two percent management fee and twenty percent profits interest.  Because the twenty percent profits are considered a partnership interest, the fund managers can convert ordinary income into long-term capital gain income.  What that means for the rest of us is that instead of paying tax as wages (brackets beginning at 0% up to 39.6% for the highest bracket) the fund managers get to pay a reduced tax rate of 20% for long term capital gains.

Does naming Fleischer to this post signal that Congress is serious about implementing tax law changes that will address the Tax Gap and complexity problems of the current code? And whose model will prevail, the Republican nominee (Donald Trump), or the Democratic nominee (Hillary Clinton)?  See previous blog reviewing the two plans.  Or will Congress be proposing a more radical model (i.e. Bernie Sanders' model, or Ted Cruz model)?  Time will tell, but at least Congress (the Democrats) seem to have a plan to address tax reforms by first selecting someone versed in explaining complex tax policies.

If you now someone who is not paying their tax liabilities, or is converting their tax liabilities from ordinary income to capital gains income to reduce their tax liabilities, you should contact us to file a tax whistleblower claim.  The IRS pays between 15-30% of collected proceeds (tax, penalties, interest and additional amounts) for specific and credible used by the IRS in prosecuting tax violators.

Corporate Taxes: Are US Multinational Corporations really paying their fair share?

There has been extensive coverage in this blog about how US Multinational Corporations are not paying their fair share by utilizing Transfer Pricing, Inversions and Earnings Stripping to reduce their effective tax rates below the statutory 35%.

Some examples are: Pfizer tried to invert a couple of times to avoid paying the US tax rate, Apple and its Irish transfer pricing, Google with its double Dutch Irish sandwich transfer pricing, Caterpillar with its Swiss structure, and on and on.

Some of these USMNCs have argued that despite utilizing these accounting maneuvers, they still pay their fair share of taxes (See Apple CEO Tim Cook's comments on 60 Minutes).  Others question whether the USMNCs are actually paying their fair share and whether they are contributing to the overall tax gap.

In contrast to USMNCs trying to shift profits offshore to avoid US Tax, there is one USMNC that is paying its fair share.  Disney, yes that Disney, and despite negative criticism (NY Times article re Disney outsourcing tech jobs to India, and Disney caught in the LuxLeaks scandal), it appears as if Disney is actually paying its true tax liability without utilizing the accounting tricks that other USMNCs utilize to reduce their effective tax rates.

According to this Investopedia article, Disney is paying at or near the US corporate tax rate (35%) of income taxes.  For example, the author states that for 2015, Disney had pre-tax income of $13.9 billion and paid corporate income taxes of $4.4 billion.  The author, David Cay Johnston, also states that Disney earned only 1% of its profits in the U.S. and paid about "1.3% if all the corporate income taxes".

Johnston also states that one reason Disney is paying a higher rate of taxes is that Disney is keeping its Intellectual Property in the U.S. and not transferring the IP to low tax haven subsidiaries.  Johnston also criticizes Disney for not spending its profits in reinvesting in U.S. businesses but in conducting stock buy-backs.

Johnston's main point is that Congress should close the transfer pricing incentive/loophole that has permitted companies (Apple, Google, Pfizer to name only a few) to utilize transfer pricing, earnings stripping and inversions to erode the US tax base and pay less taxes.  Johnston also challenges whether the corporate tax is achieving the goals it was designed to achieve.

Maybe Johnston is correct in having Congress re-visit the utility of the corporate tax structure (a similar criticism of Bob Iger's, the Chairman of Disney).  Or maybe the IRS should be doing a better job at enforcing transfer pricing, inversions, and/or earnings stripping to prevent the USMNCs from shifting taxable income it its foreign base subsidiaries, despite its recent loss in the Medtronic case.

If you have specific and credible information about a company utilizing transfer pricing, inversions and/or earnings stripping to minimize its US taxes, contact us about filing an IRS Whistleblower claim to assist the IRS in attacking the various abusive transfer pricing applications by USMNCs.