by | ARTICLES, BLOG, CONSTITUTION, FREEDOM, GOVERNMENT, IRS, TAXES
The State Department, in tandem with the IRS, has stepped up enforcement of an Obama-era law that blocks Americans with ‘seriously delinquent’ tax debt from receiving new passports — and will, at some point — be allowed to rescind existing passports of people who fall into that category.”
The roots of this law began back in 2012, when a report issued by the GAO suggested the possibility of tying tax collection to passport issuance, in an effort to collect revenue. Soon thereafter, Senator Harry Reid introduced a bill in Congress that did just that, with a threshold of $50,000 in delinquency. The bill had been attempted several times in Congress over the last few years before finally being passed in late 2015; it was quietly tucked into a highway-funding bill (HR22).
Though there are exceptions to the rule (emergency and humanitarian travel, for instance), valid criticisms of the rule were raised. For instance the law isn’t limited to criminal tax cases or even situations where the government fears you are fleeing a tax debt; your passport can now get revoked merely because you owe more than $50,000 and the IRS has filed a notice of lien. Yet a $50,000 tax debt is easy to amass today and tax liens are pretty standard. The IRS files tax liens routinely when you owe taxes. It’s the IRS’ way of putting creditors on notice so the IRS eventually gets paid; the Joint Committee on Taxation estimated that the new law would raise about $400 million over the next decade.
A serious problem, however, looms for millions of U.S. citizens living abroad. Passports, obviously, are essential for travel, residency permits, banking, school, and work visas; yet, the IRS has documented trouble with getting mail properly to expats.
Furthermore, National Taxpayer Advocate Nina Olson, say the notices to debtors often come at the same time the State Department is notified of the taxpayer’s debt, in some cases leaving not enough time to resolve tax issues before passport problems occur.
None of that seems to matter to the IRS, which has reported that 220 people have turned over $11.5 million to repay their full debts as of late June, while 1,400 others had set up payment plans to reduce their debts. Essentially, more than 350,000 Americans face passport denial when applying or renewing, with little to no recourse for an agency plagued with problems.
by | ARTICLES, BLOG, BUSINESS, ECONOMY, TAXES
The IRS recently announced plans to “close a loophole,” suggesting that hedge-fund managers have been suddenly trying avoid paying higher taxes on carried-interest profits. This issue, however, is really a non-starter, and should not be getting the coverage that it is.
The IRS wrote a rule that exempts carried interest from a longer holding period when it’s paid to a corporation rather than an individual. But it didn’t specify that it applied solely to regular corporations, whose income is subject to double taxation. What some are ridiculously suggesting is that an S-Corp “loophole” exists to allow a hedge fund manager to treat a two- or three -year capital gain as long- term. That is a joke.
When the IRS wrote the rule, they said it applies for all flow-thru, but not corporations. The reason why is because corporations don’t have capital gains rate. So if you have a hedge-fund manager for a corporation, they pay taxes at regular rates. All of a sudden, some people are suggesting that hedge fund managers might make their entity an S-Corp, so they could get the one-year provision instead of the three-year provision.
It should be obvious to anyone that the law would be implemented as applying to non flow-thru entities only. It only affects the one year holding period which was raised to three. This is unimportant anyway, because most (and certainly most substantial) gains usually take more than three years to develop anyway.
Almost every article published on this subject also incorrectly states that carried interests converts ordinary income to capital gain. In fact, it simply allocates to the manager income of the same nature as earned – ordinary, dividend, short or long-term gain.
You could probably fix the law by adding a couple of words of clarification. Every tax law is subject to the Technical Corrections Act, which is page and pages of errors that get changed. Yet all of a sudden, people are writing articles about it the rule being a loophole. It’s not, and it’s nonsense. This issue should not be getting any serious attention.
by | ARTICLES, BLOG, GOVERNMENT, HYPOCRISY, IRS, TAXES
A few years ago, it was revealed that thousand of IRS employees who were in non-compliance with the IRS — or had actually committed tax fraud — had received bonuses from the agency. The IRS had promised to place safeguards or closer scrutiny to ensure that such employees who had not done due diligence with their taxes would not receive bonuses in the future. However, a new Treasury Inspector General for Tax Administration (TIGTA) report reveals that only about a third have been caught by the additional screening. “The IRS is still paying bonuses to nearly 2,000 bad employees, including more than two dozen who were actual tax-cheats themselves.”
From the Washington Times:
“The IRS understands the importance of withholding awards from employees whose conduct is deemed to impact the integrity of the service, and/or who have a tax compliance issue, regardless of the level of discipline imposed,” wrote Katherine M. Coffman, a “human capital officer” at the agency, in the IRS’s official response.
She agreed with all three recommendations for fixing the problem, but said they won’t be done until next January. Among those getting bonuses were two employees who illegally snooped on others’ tax returns.Two other employees sexually assaulted colleagues, yet were paid nearly $1,500 in combined bonuses, the audit found.
The inspector general said the agency only screened for people who were disciplined enough to serve at least a one day suspension. Investigators said the agency didn’t screen people who had tax problems but weren’t suspended. That included three employees who received a combined $7,000 in bonuses despite having $65,000 in outstanding tax balances deemed impossible to collect by the agency. Paying those bonuses broke the law, the investigators said.
In a statement after the report, the IRS said the examples were “unacceptable” but said it’s taken steps to try to get a handle on things since the last audit. “This continues to be a priority for us, and we will continue to make improvements going forward,” the agency said.”
The IRS continues to be an abomination, even five years after the scandal that targeted certain non-profit groups in 2013. It is outrageous that taxpayer money is appropriated to those who have not fulfilled their basic tax obligations.
by | ARTICLES, BLOG, GOVERNMENT, IRS, LAW, POLITICS, TAXES
The Democrats have continuously claimed that they are looking out for America’s middle class by keeping the tax rates the same for them while seeking to raise rates on the wealthiest Americans who need to “pay their fair share”. This assertions serves to deflect attention away from the one policy that is already the mechanism for ensuring that the wealthiest pay more. What is it? The AMT.
The Alternative Minimum Tax (AMT) currently serves virtually no useful purpose, other than the raising of an ever-increasing amount of tax revenue. The AMT was instituted in its present form when the prior “add on” Minimum Tax was transformed into the AMT in the early 1980’s. Its stated purpose was to require that all taxpayers paid at least a “fair share of tax”. Yet it has become very clear in recent years that this AMT tax revenue is not coming from just the taxpayers who were the intended targets of this tax.
The AMT was developed to identify “loophole” type deductions, also known as “preferences”. There would then be an alternative calculation using lower tax rates applied against this taxable income as increased by the preferences. Whichever of the taxes is higher is the one the taxpayer must pay.
However the AMT was seriously flawed from the outset. Instead of focusing on these loophole type preferences (which would have limited the tax to a very small number of tax law abusers), the law that was passed included items that were not loopholes at all. A convoluted formula is used to calculate and compare the differences between income and deductions in order to determine who falls under the guidelines. Interestingly, a very substantial majority of all current AMT paid by taxpayers results from the following factors: 1) treating state and local taxes as a preference; 2) treating miscellaneous deductions as a preference; 3) allowing lower exemptions than the regular tax.
These factors have flaws. For instance, state and local taxes are hardly a loophole because taxes exacted by state and local governments are hardly “voluntarily” paid by taxpayers in an attempt to avoid paying federal taxes. Likewise, “Miscellaneous Deductions” is the category of deductions that consists primarily of expenses incurred to earn income. It often includes unreimbursed employee expenses, investment expenses, etc. This is the most basic and important deduction necessary to have a truly fair income tax system and should not be considered a loophole. Furthermore, the exemption available under the AMT is a fixed dollar amount which, unlike exemptions and standard deductions under the regular tax system, is not indexed for inflation; it is also phased out entirely over certain income levels.
During AMT discussions over the years, Congress used to posture and point to the AMT patch as some major revenue loss (had the AMT been applied to those families) as an excuse to raise to raise taxes in order to offset this “potential missing tax revenue”. Once the “patch” became permanent and the higher exemption level kept many taxpayers from being hit with the AMT, Congress stopped talking about the AMT altogether. But the fact still remains that there is a parallel tax system already that goes after the highest income-earners; they already pay “their fair share” — and then some
by | ARTICLES, CONSTITUTION, FREEDOM, GOVERNMENT, OBAMA, POLITICS, TAXES
As we’ve been following this story regarding the IRS for years, here’s the latest update from the Washington Times:
Nearly seven years after it applied to the IRS for nonprofit status, the Albuquerque Tea Party has finally been given a decision: Denied.
The tax agency, under orders from a federal judge, is belatedly tackling the remaining tea party cases that it delayed for years, and so far the tea party isn’t doing well. Only one of the three groups in the case was approved, and the other two, including Albuquerque, got notices of proposed denials last week.
The applicants will have a chance to appeal, but the denials aren’t sitting well with the groups, whose attorney said it’s more evidence that the IRS continues to single out the tea party for abuse.
“It is clear that we still have an IRS that is corrupt and incapable of self-correction,” said Jay Sekulow, chief counsel at the American Center for Law and Justice, which represented a number of tea party groups in a case against the tax agency.
The one group that was approved was Unite in Action, a Michigan-based organization that first applied for tax-exempt status more than six years ago. The Albuquerque Tea Party and Tri Cities Tea Party from Washington state were notified of proposed denials.
“It is clear that we still have an IRS that is corrupt and incapable of self-correction,” said Jay Sekulow, chief counsel at the American Center for Law and Justice, which represented a number of tea party groups in a case against the tax agency.
Still to come is a decision on Texas Patriots Tea Party, a group that is part of a separate class-action lawsuit out of Ohio. A judge in that case ruled late last month that the IRS was likely violating the group’s First Amendment rights by delaying its application and ordered the tax agency to process and decide on the application.
The IRS, which declined to comment on the new decisions, admitted in court that it did subject the tea party groups to intrusive scrutiny, singling them out because of their political viewpoints and forcing them to go through hurdles that other groups didn’t face.
IRS officials over the summer promised both the courts and Congress that the agency would begin to process all outstanding applications after years of delay that it blamed on a “litigation hold” policy.
Under that policy, the IRS said once a group sued, the agency stopped work on its application. Federal courts held that policy was both ill-advised and not a hard-and-fast rule and ordered the agency to get back to work.
In a notice filed last week, the IRS said it has now met its first deadline.
“As of November 8, 2016, the Internal Revenue Service has issued determinations with respect to each of the Plaintiffs whose applications for tax exempt status had been pending,” the agency said.
Mr. Sekulow said the groups never should have faced the delays, adding that they showed “continuing problems inside the IRS.”
In a court filing this weekend Mr. Sekulow asked a federal judge in the District of Columbia to officially declare that the IRS violated groups’ First Amendment rights.
The groups also said they are worried that the IRS decision-making in applications that were denied might have been skewed by the entire history of the targeting.
The Albuquerque Tea Party first applied on Dec. 29, 2009. Four months later, it got a two-page, 10-question reply from the IRS, beginning years of back and forth. It has faced a series of follow-up questions, the years long delay in court and an offer to be approved — if the group would agree to limit its political advocacy to 40 percent of its activities.
