Everything you never wanted to know about the IRS
O'Donoghue, Joseph
NOT VILLAINS BUT NOT EXACTLY FRIENDS EITHER Everything you never wanted to know about the IRS JOSEPH O'DONOGHUE FIRST, THE GOOD NEWS: your fringe benefits are safe until June of next year. On...
...Certified public accountants, tax law specialists, and other established professionals may charge $1,000 or more on an annual basis to advise clients on tax-avoiding strategies...
...But this effort, which the service publicizes as an incentive toward taxpayer compliance, has only a limited impact...
...Breaks like the investment tax credit, expected to total nearly $16 billion in fiscal 1980, are preferred by firms because steady increases in the size of tax breaks are easier to achieve in Congress than a straight reduction in the overall rate...
...the random selection covers so small a percent of all returns that it fails as a deterrent in categories with low compliance...
...A recent Wall Street Journal survey of IRS accuracy found uniformity in the error pattern, e.g., every IRS office surveyed was unaware of the conditions under which state tax refunds need not be deducted on the federal return...
...But the Jones-Conable bill to accelerate depreciation of business assets, a sure bet for quick passage if a tax cut actually emerges, would give $5 billion in immediate benefits to business during 1980, and far greater aid in the following years...
...The Business Round Table, an influential association of heads of corporations, has been a central force among business lobbyists pushing for a substantial reduction in capital gains tax as an incentive for corporate investment...
...The nation's business community understandably prefers complex, condition-loaded tax legislation rather than a definitive, easily monitored rate as VAT has proved to be in Europe...
...But the top benefit they provide is their clout in turning aside a showdown with IRS...
...During the past decade the U.S...
...And IRS is not likely to gain additional tax revenue through its campaign against the wide assortment of selfemployed or independent contractors, groups which have been welded into cash-heavy lobbies as a result of the IRS challenge...
...But IRS resembles the U.S...
...an income of $25,000 gets taxed at a higher rate than that applied to cither $10,000 or $15,000...
...This consistent pattern, which escaped the attention of the American Bar Association in its harsh judgment on the service, is the result of a negotiated order, introduced into the nation's chaotic tax system by IRS auditors...
...In some cases a commercial preparer can help a client by suggesting a higher level for a particular tax deduction, a level that will not be challenged by IRS because it is less than the national average...
...In response to congressional prodding, the IRS staff has been instructed to make special efforts toward tax recovery in areas long recognized as low in tax compliance, e.g., gains on the sale of property, income from rents or unlisted securities, and under-reporting of income by the self-employed...
...in cases involving less than $5,000 of taxes due, the service has a ninety percent out-of-court settlement rate, with an average payment of fifty percent of the taxes claimed...
...VAT also has detractors because of the major shifts which it would certainly bring to the U.S...
...But that's a respectable error rate compared to the overall accuracy of IRS staff...
...But most tax breaks are under-utilized by average taxpayers, who generally must choose the long (1040) tax return form in order to get the related benefits...
...By providing a major source of revenue, VAT has historically reduced the role of a nation's individual income tax to manageable proportions...
...A recent survey by the Opinion Research Corporation found that ten percent of sampled individuals, with incomes of $30,000 a year or less, made new investments because of the tax reduction in capital gains, while thirty-six percent of individuals earning $75,000 or more reported that they took advantage of the new tax break...
...However, no one in IRS seriously predicts that the service will have major impact in collecting the missing income, and a more probable scenario is a steady growth in the size of the underground economy...
...Many tax breaks, e.g., depreciation, can be interpreted in a variety of ways, with the eventual choice determined by whatever produces maximum benefit for a particular company...
...Most congressional observers see little likelihood that IRS will succeed in obtaining its current legislative goal, viz., a flat ten percent withholding of payments to the self-employed by anyone who makes a payment for their services...
...Most of the employees of the major firms, e.g., Montgomery Ward, Beneficial Finance, H. & R. Block, are neither attorneys nor accountants...
...An employee involved in two or more audits, over a relatively short period of time, has jeopardized his or her future with a commercial preparer...
...In Japan, where individual savers do not have to pay taxes on deposits of up to $65,000, the average worker saves twenty-five percent of every paycheck...
...Be rich In a one-to-one confrontation with a taxpayer, the IRS auditor can play the role of prosecutor, jury, and judge...
...For politicians it's a no-win situation...
...the actual cost to the taxpayer who selects a cautious preparer with a strong, self-serving preference for the short form could be several hundred dollars in a lost refund...
...IRS quietly accepts the increasing use of cohabitation as a tax-saving device...
...Unless Congress passes tax legislation specifically exempting fringe benefits before next June, IRS will win its five-year campaign to have these benefits taxed as income...
...adopt the European practice of placing a flat, fixed-rate tax on each step in the chain of production, from raw materials to eventual retail sale...
...This year one national chain advertised an "inflationbeating" charge of $7.50 for preparing the short form...
...it passed six tax reform acts within the last eleven years, all ostensibly aimed at reducing abuses and- achieving equity in tax burdens...
...While landlords, investors, and rich people are getting away with murder, wage and salary earners are making up the amount lost," says Robert Reno, business analyst for Newsday, comparing the IRS estimate of fifty percent of unreported earnings in rent, and twenty-two percent of unreported capital gains, with the mere two to three percent of tax avoidance linked to salaried workers...
...expert legal assistance in tax law is very expensive, and the presence of a commercial tax preparer at an IRS audit has little or no impact in most cases...
...But the law could be individually counterproductive if it ended up providing millions of taxpayers with an additional incentive toward use of the short form, a practice which eliminates the possibility of benefiting from most tax breaks...
...Y.) and James Jones (D.-Ok...
...The bad news...
...Taxpayers generally remain unaware of the trade-offs made at • 28 March 1980: 173 their expense, viz., less deduction (and smaller tax refunds) in return for no IRS review of the preparer's work...
...The U.S...
...This year an estimated two million Americans will get the fear treatment...
...Through analyzing payments made by 2,600 employers to approximately 7,000 individuals, the Treasury Department found that only seventy-six percent of independent contractors reported the money for income tax purposes, while only sixty-six percent reported it as income under the Social Security tax...
...Congressional response to the Carter budget proposals have been expectedly cautious: most incumbents rely on at least a token readjustment of tax rates to gain campaign advantages...
...for the median income U,S...
...in the same period the corporate income tax is expected to decline by $ 1.1 billion to a $71.6 billion total...
...Only three returns were found to be correctly computed...
...At congressional hearings, IRS Commissioner Jerome Kurtz is regularly asked to explain why the bulk of audits continue to occur in the classification with the best record of taxpayer compliance, viz., workers annually earning $10,000 to $50,000...
...the cost of checking individual claims would be greater than the amount of tax recoverable...
...Their opponents, working for corporations under tax audit, generally command salaries two to three times greater than IRS offers, a payout readily provided by firms to their specialists with records, of Whether Carter can succeed in his effort to avoid an election year tax cut is problematic...
...During an investigation of the service's methods, former IRS Commissioner Donald C. Alexander told a congressional committee: "The truth is that IRS has such a limited budget, and such limited manpower to JOSEPH O'DONOGHUE, a professor of sociology at Hofstra University on Long Island, has testified before congressional and state legislative committees on tax reform...
...Sweeping reforms, regularly promised by presidential candidates, do not occur because of the political need to provide "a little something for everybody," the formula to which former Ways and Means Committee Chairman Wilbur Mills attributed his success in winning House approval 28 March 1980: 175 for complex tax legislation...
...In effect, this thirty-three percent throwback rate voids the neutrality of the audit process, since the criteria for accepting, or not accepting, a potential candidate can be highly subjective...
...substantial revenue from VAT could be used to entirely eliminate the Social Security tax...
...According to IRS, in 1976 alone the government failed to collect as much as $26 billion in individual taxes due on unreported income of $135 billion...
...A growing awareness of the marriage tax has probably 28 March 1980: 177 lowered the U.S...
...Many IRS agents would prefer to occasionally challenge the powerful, but their audit choices, made after computer selection of candidates, must have advance justification from a supervisor...
...The service periodically selects a nationwide sample of 40,000 to 50,000 returns for its Taxpayer Compliance Measurement Program (TCMP...
...This year's estimated federal tax receipts will represent only 21.7 percent of the nation's total output, compared to tax receipts equivalent to 20.2 percent of output at the beginning of the 1970s...
...Their successful resistance to the mandated imposition of withholding upon their income suggests that an untypical, war-related atmosphere gave IRS the most effective tool it has in a nation not really inclined toward voluntary tax payment...
...Over the strenuous objections of IRS, the 1978 Revenue Act mandated that independent contractor status be given to persons who, by personal practice or by previous interpretation, had been treated as self-employed in the past...
...Senator Edmund S. Muskie (D.-Me...
...Manipulating the progressivity of the tax system has never been difficult for those individuals who have disposable, after-necessities income, plus the assistance of an expert in legitimate tax avoidance...
...Every major presidential candidate has gone on record as favoring a faster tax write-off for depreciation...
...workers are saving 3.3 percent of their after-tax income, British workers are saving thirteen percent of disposable income, West German workers fifteen percent...
...At a time when U.S...
...a taxpayer, accepting a recommendation officially provided by IRS staff in the preparation of a tax return, is not exempt from tax penalties when the advice is responsible for an error in the return...
...But there can be no doubt about the enormity of tax-free income in the Maximum tax breaks go to upperincome Americans who have large mortgages, high property taxes, and one or more tax shelters...
...A study by Martin Feldstein, Professor of Economics at Harvard, suggests that the increased use of the short (1040A) form has cost the nation's charities about $5 billion since 1970...
...The majority of their front office personnel, responsible for preparing individual returns, have only a modest familiarity with the total tax structure...
...With thirty-five percent of its total budget spent on the audit program, the service's overall cost effectiveness hangs on the outcome of personal interviews with taxpayers...
...tax rate remained in the bottom third among leading industrial powers...
...Under negligence penalty provisions, enacted by Congress under IRS lobbying in 1976, the service can charge accountants a fine of $100 per return for not catching petty errors that result in lower taxes, even when the client is mainly to blame...
...It's the code, not the collectors A substantial portion of IRS failures can be linked to bureaucratic bungling and small-mindedness on the part of some IRS personnel, as documented by critics of the service...
...its administration would present IRS with an unprecedented challenge, and it could lead to a startling increase in the combined U.S...
...VAT could be made equitable, however, if combined with an expanded earned-income program, providing major tax credits at the lower range of income...
...they will be summoned to an audit interview...
...workers would require a publicly funded agency, providing salaried professionals without cost, an action which would certainly have major impact in reducing the amount of tax paid by low- and middle-income workers...
...A taxpayer's willingness to close the case on terms offered by the agent can be an expensive mistake...
...But the partial return of tax dollars provides a white hat image to members of Congress campaigning for reelection...
...A close look at General Accounting Office data reveals that two out of every three IRS mistakes end up benefiting the individual taxpayer...
...But with their reputations at stake, accountants now protect themselves by securing more documentation from their clients, and by increasing their fees to cover the potential penalty, which represents a marginal cost of doing business in a lucrative profession...
...chairman of the tax-writing Ways and Means Committee in the House...
...This advance was not continued in the 1970s which, according to the Census Bureau, brought the median family an income gain of only 6.5 percent, despite the increase in the number of workers per family, as wives and mothers found jobs whose net effect was to keep the family even with inflation...
...taxpayers with annual earnings above $50,000...
...Over half of the members of the House of Representatives have co-sponsored a bill introduced by Barber Conable (R.-N...
...one-third of all "non-normal" returns are thrown back into the common hopper, destined for eventual shredding...
...This is a curious interpretation of U.S...
...IRS audit guides for agents, now available through the Freedom of Information Act, cite as the "primary objective" in the selection of tax returns "the highest possible revenue yield from the examination man-hours expended, and the examination of as many returns as is feasible for the maintenance of a high degree of voluntary tax compliance...
...Ninety distinct, highly complex tax preferences will cost the U.S...
...whose net effect would be to cut depreciation time for most business investments in half...
...The nation's corporations respond to ambiguities in the tax code by hiring the brightest, most ingenious practitioners of the art of tax reduction...
...On the hopeful side, the U.S...
...tax structure...
...a drop in the progressive tax rate for the married gives couples an advantage not available to singles, who then become the penalized...
...The nation's corporations will score impressive gains even if Congress fails to pass any tax cut this year...
...Introduction of VAT into Michigan in 1976 has helped to keep that state's economy and its budget on an even keel...
...successes in a special tax court handling audit claims of less than $5,000...
...Rising tide of cheating IRS Commissioner Kurtz refers to the federal tax system as an efficient, trusted network which has traditionally benefited from a high degree of voluntary compliance...
...Sometime in the 1980s the nation appears certain to take Commonweal: 180 some of the pressure off the payroll tax by finding alternative funding for at least part of the Social Security program, e.g., Medicare...
...IRS concedes that the taxpayer who lacks the expertise to compute taxes according to both options, viz., the short form and the long form, runs the risk of paying a greater tax than legally required...
...A bill which would give married couples the option of filing a joint return or a single return—whichever is least costly—has been introduced by Representative Millicent Fenwick (R.N.J...
...In some cases, however, the taxpayer gets the payment without taking the action...
...The marriage penalty The so-called marriage penalty raises additional questions as to whether the tax burden is really scaled in a progressive manner, and whether a progressive pattern is even attainable...
...But on each occasion the lawmakers enacted a new string of incentives, which ultimately provided fresh tax benefits to certain segments of the economy...
...Higher income families get larger percentage cuts in health costs and in property damage than low income families, whenever these costs are deducted from total income for tax purposes, thereby eroding the apparent progressivity of the tax rates...
...Salaried workers who occasionally moonlight for extra income are also classified as self-employed...
...government can push a button and get a great deal more revenue.'' A VAT rate similar to that followed in many European nations, e.g., ten percent on most goods and services, and five percent on food, housing, and medical care, would net the Treasury an estimated $130 billion in its first year...
...IRS officials attribute their high error rate to the complexities of the tax laws...
...The $613 billion budget proposed by the Carter administration for fiscal 1981 assumes not tax cuts but a $10 billion revenue increase...
...They say there is no particular tax advantage for the residents of Flushing, N.Y., despite the award of over $800 in tax refund on a return that would be taxed at a far higher rate elsewhere in the nation...
...Professional tax preparers used by upper-income Americans have a dramatically different way of dealing with IRS...
...Persistent high inflation and slow economic growth are the two major arguments used to justify a dramatic change in the location of tax burdens...
...The system, absurdly twisted to serve two sometimes contradictory goals, is now manipulated at will by technicians who take the benefits for themselves and their clients, while leaving the burden of payment upon the uninformed, and it is enforced by an IRS whose actions are perceived as having the predictability of a roulette wheel...
...In reality, that type of tax cut would have minimal impact for the majority of workers...
...IRS auditors are required to justify each hour of their time in a manner that satisfies an elaborate structure, Proper Utilization of Time (PUT), set up to monitor staff efficiency...
...A recent study by the General Accounting Office, acting in response to a congressional inquiry, found that IRS made errors in at least two of every five audits it conducted...
...The practice of withholding taxes from every paycheck, in amounts generally greater than the ultimate tax payment, was initiated in 1943, a year when World War II, widely perceived as justified, temporarily raised tax-paying to the level of a moral imperative in the minds of many Americans...
...In late 1979 IRS's Kurtz told a congressional committee: "in fairness to those who report their income and pay their tax, the service will strengthen its efforts to discover and tax unreported income.'' But IRS critics question how much impact the service can have in improving tax compliance rates because of its methods.' 'It appears that the IRS approach to solve such non-compliance problems is to limit the number of self-employed persons, instead of using the array of administrative mechanisms available to it," observed the General Accounting Office in a 1977 survey of the effectiveness of IRS tactics...
...of the $ 100 billion of income from legal sources that was not reported, $73 billion went to people who underreported, with only $27 billion gained by non-filers...
...Since all three categories affected (viz., singles, one-income couples, and two-income couples) have about the same number of taxpayers, the political constituencies cancel each other out, producing a political standoff...
...IRS reluctance to break down the $10,000 to $50,000 income category into sub-groups, thereby providing a clearer picture of compliance rates, raises additional doubts about the real impact of its audit program...
...But in their office they face the possibility of an extra-heavy work load, or a string of disagreeable assignments, whenever a supervisor interprets their performance as producing revenue below the prevailing recovery rate...
...At the conclusion of the process, of course, the completely finished product would end up retailing at ten percent higher because of VAT, which in effect would be a national sales tax splintered among a chain of producers...
...But an almost universal failing among the critics, particularly former IRS personnel writing about their past experience, is a reluctance to look beyond the daily behavior of the service...
...and Senator Charles C. Mathias (D.-Md...
...Since the base of projection rests on amounts of income actually discovered to be unreported, the overall estimate is reliable on the downside, i.e., at least $135 billion in annual earnings is never taxed...
...If both individuals are employed, they almost invariably benefit by the lower (single) tax rates applied to their separate salaries...
...IRS personnel are instructed to seek a compromise in any tax dispute that is likely to lead to a defeat in court...
...VAT would have to be phased in over a period of time in order to avoid a ballooning of the inflation rate, and adjustments would be temporarily required in certain Many Americans, caught up in the Proposition 13 mood, are surprised to learn that the federal tax rate did not rise appreciably in the 1970s...
...Despite an increasing documentation of its errors, and despite growing confusion over tax law interpretation, IRS shows no signs of changing its game plan...
...Personal tax cuts would be geared to middle-income taxpayers with a high level of annual savings, while the business tax reduction would be oriented toward firms with heavy commitments to capital formation and plant investment...
...Which Americans draw the most benefits from tax-free income is not clear, the income categories in data supplied by the Department of Commerce are too broad to identify the specific gainers, viz., individuals enjoying the largest gap between total personal income and taxable personal income...
...Of course, the agent in charge can call for reinforcements, but that move has to be justified in cost effectiveness: how long will it take, and how much will it cost the government to get more tax revenue out of this particular case...
...There are potential financial problems in living together without benefit of a marriage document, e.g., if one dies, the survivor has no claim on the pension or the Social Security benefits of the other...
...Because Congress has been loading the federal tax code with non-taxable incentives, the amount of tax-free income in the nation is rapidly expanding...
...IRS officials are tightlipped about the individual leverage which their personnel have in the final determination of which Americans get audited...
...28 March 1980: 181...
...erable resistance in Congress...
...It is ironic that VAT, introduced in the mid-1950s to many European nations as a response to widespread tax evasion, may now get favorable consideration in a U. S. where rising tax evasion appears unstoppable...
...Representative Samuel Gibbons (D.-Fla...
...IRS officials claim that the standard deduction (or zero bracket amount), now incorporated into the short form, makes the use of that form a clear benefit for the majority of taxpayers who choose it...
...Top IRS administrators are the only officially recognized depositories for the formula, which some agents believe to be split among the elite: no single individual is aware of all its components...
...Balanced budgets are notoriously elusive...
...The Tax Reform Act of 1976 contains a provision specifically exempting lobstermen from the advance withholding of Social Security taxes, a victory for the Maine Lobstennen's Association after a bitter conflict between its members and IRS agents...
...Value Added alternative The two most powerful tax writers in the U.S...
...If the taxpayer spends another $2,000 in legal fees to set up a possible court challenge, he or she gains nothing by winning because of the legal expenses, but faces a doubling of the overall loss if defeated...
...Taxpayers who have attempted to save legal fees by arguing their own cases have enjoyed some Only ten percent of total IRS audit effort is used in reviewing tax returns from the nation's 1,300 largest corporations...
...cost of living formulas to offset the one-time impact of upward price movement...
...In 1976, the California Department of Consumer Affairs examined 400 tax returns, randomly selected from the work of commercial preparers...
...But once in place VAT could be used to reduce the growth of tax breaks, created by the powerful and uncontrollable in their allocation of special benefits...
...The favorite target in this campaign are individuals whom the service cites as "independent contractors," i.e., workers who pay taxes only after the completion of a job, and with only a minimum of advance reporting of possible income...
...As tenured civil servants, IRS auditors have sufficient job security to be immune to taxpayer complaints...
...Although IRS denies the existence of an incentive plan, most agents will privately admit that a high dollar return to the government, per employee hour, will dramatically improve prospects for salary gains...
...inflation gets more tax out of workers by lifting them into higher tax brackets, a process which gave the Treasury a whopping $37 billion in unanticipated tax revenue for fiscal 1979...
...But fresh problems for IRS will appear even if there is no major tax legislation this year...
...Recent improvements in direct reporting by banks on gains from individual savings accounts have enabled IRS to match interest data with taxpayer returns, triggering the detection of previously unreported earnings...
...two out of three audits produce extra revenue for the Treasury, with an average increase of $967 per audited taxpayer in 1978...
...In the future it would then be possible to increase old-age and social benefits by pushing buttons on the industry console rather than on the paycheck machinery...
...the service has issued a private ruling that couples who get divorced, but continue to live together, may file as singles...
...The recent decline in taxpayer use of elaborate reporting procedures, viz., an itemized 1040 tax return plus a dozen or more auxiliary forms, appears to be influencing charitable behavior...
...As a hidden, but real, national sales tax it is regressive: its burden falls disproportionately on lower-income workers who spend a greater proportion of their income on purchases than the affluent...
...Passage of the legislation would be a windfall for non-profit organizations and charitable enterprises, which are losing $1.4 billion in annual gifts according to Feldstein's latest calculations...
...The role of villain comes easy to IRS...
...The service's attempt to win approval for a tax on pension contributions by employees of non-profit institutions appears doomed...
...Some analysts question whether the federal tax in its present form is really progressive: with so many available distortions, e.g., tax shelters, entertainment allowances, tax-free investments, etc., are there any informed, upper-income individuals who do not succeed in decreasing their taxable income to the lower levels of the graduated income tax...
...In recent years the service has been most effective in cases where the advance collection of taxes eliminated the option of non-reporting...
...The results varied from a tax due of $52.14, arrived at by the IRS office in Portland, Oregon, to a tax refund of $811.96 produced by the IRS office in Flushing, New York...
...Should unemployment rise this year above the optimistic 7.5 percent projected by the White House, the Carter dream of a truly balanced budget will self destruct, immediately replaced by the reality of tax cuts that win elections...
...There are problems with VAT...
...tax system distinctive is its peculiar linkage pattern...
...its bureaucrats waste their expertise on chores irrationally assigned...
...The sixty percent of taxpayers who prepare their own returns can be expected to follow their annual routine of reporting, or not reporting, all of their income according to a personal sense of what is right and riskable...
...And the service's proposals to deny tax-exempt status to academies suspected of being segregationist—an issue in which legislation recommended by IRS was actually passed—have proved to be unworkable and are now disregarded...
...Whether Carter can succeed in his effort to restrain congressional pressure for an election-year tax cut is problematic...
...Introduction of VAT would give IRS the records and the data it needs to secure equal enforcement...
...One way for two-worker families to keep up with inflation is to moonlight on a cash basis with no tax report, or to provide services for cash payments that also escape taxation, illegal methods that become more attractive when rising taxes and falling prosperity coincide...
...With a total force of 85,000 employees, or one federal tax collector per 2,600 Americans, the service would appear to have the muscle to secure equal enforcement of the tax code...
...the example of effectiveness and the availability of additional revenue is too enticing...
...Almost all economists regard the tax as an excessive burden upon labor...
...has repeatedly pointed out, the U.S...
...Congress, of course, does take action to end some tax breaks and to close certain tax loopholes...
...The real ambiguity in IRS auditing procedures begins after the computer has done its job of providing candidates...
...As City Corporation President Walter B.Wriston recently commented: "All the Congress, all the accountants and tax lawyers, all the judges and a convention of wizards, cannot tell for sure what the income tax law says...
...Every percentage point increase in the inflation rate has the effect of raising individual taxes by 1.6 percent...
...One way or another, there will be a shift in the tax burden to wages from capital," says economist Rudolph G. Penner of the American Enterprise Institute, who predicts that any tax cuts for individuals in the 1980s will be modest, special category changes well below the large tax reductions to be assigned to corporations...
...Effective tax preparation assistance for most U.S...
...This tax advantage is concentrated among earners at upper-income levels...
...Nor can tax payments by middle-class and working-class taxpayers, groups traditionally placing a high degree of reliance upon commercial preparers, be substantially increased by new scares from IRS...
...The service has admitted to Congress that its greatest failures, i.e., the top level of non-compliance with tax laws, occurs in those cases where a worker's tax is not subject to advance collection by an employer, and where the absence of income records assists the individual in avoiding taxes...
...As House Speaker Tip O'Neill (D.-Ma...
...a commercial preparer is more likely to choose peace with IRS rather than claim a tax reduction that could trigger an audit...
...of the Senate Finance Committee, are among a number of tax specialists who view a Value Added Tax (VAT) as a needed relief for an overburdened income tax...
...a nation that is not forced into pursuit of relatively small transactions, as a source of revenue, finds that tax compliance rates can be stabilized at acceptable levels...
...A bipartisan group of more than one hundred members of Congress is currently sponsoring legislation to extend charitable deductions to taxpayers who do not itemize, i.e., who use the short form...
...Revenue gains available through the type of tax enforcement followed by IRS appear to be exhausted...
...For upper-income taxpayers, assisted by a well-paid profesCommonweal: 176 sional, the selection of appropriate tax forms is no problem...
...Any discrepancy between the return and actual taxpayer behavior is noted, with the total variations eventually providing a measure of taxpayer compliance...
...Under current legislation, a 6.13 percent tax on payroll, assessed equally against employee and employer, is solely responsible for an old-age benefit system and a worker-disability insurance program, plus medical care for the elderly...
...IRS reluctance to have its decisions reviewed by the courts means that attorney expenses are a high-return investment for upper level taxpayers under audit...
...How reliable are the IRS estimates...
...And the removal of all taxes on savings earned at lower-income levels could be expected to begin a pattern similar to the European experience...
...Under present law an audited taxpayer will be reimbursed for legal expenses by the government only in cases where the taxpayer wins a court decision, and the court simultaneously declares that IRS acted in bad faith, a relatively rare decision...
...Many Americans, caught up in the Proposition 13 mood of tax revolt, are surprised to learn that the federal tax rate did not rise appreciably in the 1970s...
...Other analysts predict that the traditional practice, viz., cutting personal taxes by about $3 for every $1 reduction for business, will be replaced by a formula assigning the bulk of tax cuts to corporations...
...When confronted with computer-detected irregularities, most agents have been accepting one-third of what the system appears to demand, allowing the audited taxpayer the benefit of the doubt for the balance...
...at least fifty-six percent of all personal income, on a nationwide basis, will be tax free this year, according to Roger A. Freeman, Senior Fellow at the Hoover Institute...
...The agent is not legally obligated to inform the taxpayer about ambiguities in the law, lower court decisions against IRS in similar cases, or the probabilities of a reversal of the agent's decision if an appeal is made...
...With the majority of families now characterized by two working adults, the opportunity to match inflation through new entries into the work force is disappearing...
...another IRS worker in the Flushing office, interpreting an ambiguous tax law could have recommended an extra $52 payment in the style of the Portland division...
...According to a 1977 Roper poll, the average American now believes thirty percent of his fellow citizens either cheat on their taxes, or don't file at all...
...family it would mean an annual tax savings of less than $100...
...Making the audit selection process appear esoteric is gamesmanship...
...is the only major Western nation which does not dip into general tax revenue to finance its social security program...
...Carter's planned reduction in the deficit, from this year's projected $39.8 billion (now pushed back $2-3 billion), will be made possible largely by unlegislated, inflation-produced increases in tax payments from individuals, rather than by severe Commonweal: 178 spending restraints...
...Auto loans or credit card purchases, frequently carried at twelve percent interest, represent an actual, after tax deduction, cost of only eight percent for individuals earning $23,000 who itemize on their federal returns...
...Only the difference between the two taxes would be retained by the Treasury...
...This ninety-nine percent error rate has been matched or exceeded in other studies, e.g., in 1979 a New York-based consumer organization could not find a single commercial preparer who was aware of the deductibility of penalty charges imposed by banks for late payment on loans...
...There is no solid evidence to establish the effectiveness of fear as an incentive toward tax payment, a fact conceded by the IRS audit formula, which now regards previously audited, with penalty, returns as a high probability category for subsequent taxpayer error...
...They are in demand because of their ability to interpret tax complexities in a style that financially benefits their clients, and because their fees are tax deductible, reducing their real cost by forty to fifty percent for high bracket taxpayers...
...But the service admits that these increases represent a mere fraction of the unrecorded income that escapes taxation in the U.S...
...And how will it look if it ends up as a total waste through a taxpayer victory in court...
...IRS offers secure, lifetime employment to accountants who, after a brief introductory phase, never again have to demonstrate their proficiency in winning important tax cases...
...Exactly how much of a variation it takes to trigger this personal review is a secret which IRS raises to cult level under the title Discriminant Function (DIF...
...Ullman and Long concede that they have no hope of getting Congress to approve VAT this year, partly because of public suspicion of anything resembling a federally imposed sales tax, and partly because the present tax system is manipulatable to an extent that would be impossible with VAT...
...Despite advertised claims of support, e.g., many promise to pay the interest due on their mistakes, the commercial preparers are in a difficult, embarrassing position when a client is summoned to an audit...
...Although IRS eventually audits one out of ten taxpayers with itemized returns in the over $50,000 income category, the amounts recovered are relatively modest compared to funds gained through audits of lower-income workers...
...In the absence of a legislated tax cut for individuals, there will be an indirect income tax increase when inflation pushes more Americans into higher tax brackets...
...of the House Ways and Means Committee, and Chairman Russell B. Long (D.-La...
...Best defense...
...If two, previously separate, incomes of $15,000 and $10,000 are combined through marriage, the couple ends up paying an extra $600 in tax for the first year of their marriage, a tax penalty that will increase as their income rises in an inflationary period...
...Only two out of every three returns selected by the computer as worthy of audit are actually audited...
...Constant tinkering with the federal tax structure has produced a chaotic mess...
...But members of Congress, citing government data on the error proneness of IRS, question the value of giving more tax enforcement money to the service...
...With its enormous data bank IRS can simply start from the top, beginning with individuals who report the greatest variations from the norms, then work downward according to the number of audit hours available in a particular year...
...The audit process, however, remains solidly stacked against most lower and middle-income taxpayers...
...But offsetting their marginal gain is the investment of research time, funds spent in occasional legal consultation, time lost from employment, and the strain of a pending court case with an uncertain financial outcome...
...Senior auditors claim that it takes only a few minutes of their time to separate a case Commonweal:' 172 that is worth the trouble of an audit, in terms of revenue and time, from another case where the potential return is not likely to justify the expense of investigation...
...Throughout the 1970s the combined U.S...
...With its flat rate, VAT does not need to be negotiated in the IRS style, nor is it subject to wide variations in calculation...
...Behind the computers The trigger for most audits is a relatively simple computer decision...
...IRS has petitioned Congress for legislation that would require independent operators to start paying a ten percent withholding tax if they work for fewer than five employers in the course of a year...
...Thrpugh a personal interview an auditor checks the accuracy of every entry in each of the returns under review...
...Included in this category are salesmen, insurance and real estate agents, loggers, consultants, writers, and various other workers who pay no withholding tax if they operate on a freelance basis...
...And many tax preparing services, e.g.., H. & R. Block, promise to accompany a client to an audit, where the preparer will explain the procedure used in completing the return...
...taxation, i.e., combined federal, state, and local taxes, now approximates 33 percent of GNP, compared to tax rates approaching 50 percent in West Germany and other advanced industrial states...
...The conflicting demands of the major coalitions, e.g., labor, industry, health, education, banking, etc., are accommodated through the wide dispersal of tax benefits, either as outright gifts in the form of a helpful clause in a tax bill, or as special considerations to be used by those fortunate enough to have professional steering at tax time...
...The rapidly growing network of untaxed activity, now cited as the nation's "underground economy," is widely perceived as a threat to the entire tax structure...
...military in that it can place less than 10 percent of its total manpower into front line efforts...
...IRS officials argue that audits produce $5 of extra tax revenue for each $1 of cost...
...Congress has already approved the tax-exempt status of similar contributions made by employees of profit-making institutions...
...because its value added tax of 2.35 percent is not pegged to fluctuating business profits, revenues are not subject to wild swings within economic cycles...
...its recent reports of tax cheating focus on individual rather than corporate returns, and it offers Congress few suggestions on how to improve the enforcement of corporate taxes...
...the nation's system of tax construction, not the mental make-up of IRS people, is responsible for the tax jungle in which we live...
...The almost perfect error rate is not entirely the result of incompetence...
...A recent study by the Federal Administrative Conference found that the higher the tax deficiency claimed by IRS, the lower the percentage it finally accepted in settlement, a situation which the report linked to the proficiency of well-paid tax lawyers...
...In recent years the service has been more of a lackey than a villain...
...VAT supporters would prefer that the U.S...
...The unattractive alternative to a tax on production, in the style of VAT, is more of the current mess in federal taxation, more erratic behavior from IRS, and more, much more, tax evasion...
...many of the errors made by commercial preparers are the unavoidable consequence of their supercautious approach toward IRS...
...Quick, easily achieved, tax revenue gains are available to IRS in cases where the audited individual is alone and unfamil* iar with the system...
...there is very little mystery in how the service proceeds in challenging individual taxpayers...
...had the lowest rate of productivity growth among all industrialized nations, only 1.8 percent a year, with an actual decline of 0.9 percent in 1979...
...IRS proposals to improve compliance through requiring greater tax withholding by the self-employed have met considM any tax analysts link mounting problems in collection to a failure of nerve on the part of President Carter, who called the tax system "a national disgrace" but has been unable to secure major revisions...
...About $35 billion of the unreported income was from drug traffic, gambling, prostitution, and other illegal sources, but at least $100 billion was legal income which went untaxed...
...Since the major firms are continually engaged in competition for new clients, they have an interest in avoiding the damage of being publicly linked to audits...
...The selfemployed, cited by IRS as responsible for $100 billion of tax evasion each year, include business people, skilled craftsmen, lawyers, doctors, architects, and other upper-income professionals...
...NOT VILLAINS BUT NOT EXACTLY FRIENDS EITHER Everything you never wanted to know about the IRS JOSEPH O'DONOGHUE FIRST, THE GOOD NEWS: your fringe benefits are safe until June of next year...
...IRS estimates of the size of the underground economy are believed by some critics to be kept deliberately low, in order to protect the image of the service as an effective collector of taxes...
...history when one looks at the tax recovery data supplied by IRS...
...When a Washington-based consumer group, Tax Reform Research, submitted the same tax report to twenty-two IRS offices around the country, each office came up with a different bottom line...
...Each industrial purchaser of a product, destined to be resold at a later stage of production, e.g., leather on its way to a variety of finished products, would be required to pay the equivalent of a sales tax of approximately ten percent at purchase time...
...In 1974, IRS secured an increase in its annual appropriation from Congress by promising to concentrate its audit efforts on classifications with the lowest rates of compliance, a commitment which the service has failed to keep...
...IRS helps to keep the firms running scared...
...On December 29, 1979, with two days to spare, President Carter signed a law which blocked IRS from treating as taxable income a variety of workplace benefits, e.g., life insurance, medical benefits, subsidized cafeteria meals, employee discounts, etc...
...Most Americans don't like VAT when they hear about it, e.g., eighty-two percent of subscribers to Money magazine are opposed to the plan...
...income tax was forced to play two increasingly difficult roles, viz., a supplier of large amounts of revenue, and a motivator to desirable economic behavior...
...What is not problematic, however, is a lopsided increase in tax benefits for corporations in any tax bill that is passed...
...To many taxpayers the short form looks like a good choice, simply because the bottom line of the long form, professionally executed to their best advantage, is unknown...
...The growth of the underground economy is the best commentary on our present tax-system," claims Thomas Field, executive director of Taxation With Representation, a national tax reform group...
...Manufacturers and retailers report that their .taxes are lower under VAT than under previous tax structures, and adminstrative costs for the state are low due to ease in collection relative to other systems...
...Legislating a tax preference or a tax deduction for a particular group can win thousands of votes in a home district, while linkage to vigorous tax collection, especially the crude pattern associated with IRS, can be political suicide...
...On September 5, 1979, Commissioner Kurtz told a House subcommittee that IRS would "allocate more resources to pockets of non-compliance," and that "major research initiatives" were under way in the recovery of revenue from tax evaders...
...Of course, there is an equally damaging alternative: the unassisted taxpayer can inflict the same amount of damage upon himself through overpayment...
...who has called for limits on the practice, insists that all tax breaks should be regarded as a direct treasury payment to certain taxpayers who perform the desired action, and who know how to report it...
...But these controls are given little chance of passage in a Congress now inclined toward providing new forms of corporate tax assistance...
...The nation's tax-collecting service thus ends up with the job of separating the legal from the illegal at a time when the tax code is becoming increasingly complex...
...Short forms, short shrift Although some tax breaks go to low-income workers, their overall impact is minimal, e.g., the earned-income tax credit, providing assistance to three- or four-member family units with annual earnings below $10,000, accounts for less than two percent of the total tax reductions used each year...
...households consisting of an unmarried man and woman doubled during the 1970s, to a current level of 1,137,000 units...
...Lawyers, writers, loggers, craftsmen, and other workers not subject to advance withholding of taxes, represent several million votes in key congressional districts, a force with considerable clout at tax-writing time...
...A taxpayer who goes to an audit interview with a lawyer specializing in tax cases, or with an accountant aware of tax court decisions, has firepower far superior to that of the typical IRS auditor...
...What is not problematic is a lopsided increase for corporations hi any tax bill that is passed...
...IRS data suggest that under-reporting is much more of a problem than nonreporting...
...The reason: without the incentive of a tax deduction, most non-itemizing taxpayers have reduced their charitable contributions...
...The back and forth game over fringe illustrates the good guy versus villain role that Congress and IRS prefer...
...the old threats molded the preparers into subservient, no-risk recorders of information rather than 28 March 1980: 179 advisors on how to lower individual taxes...
...During the 1960s the median American family's real, after-tax, income rose by thirty-three percent...
...Special tax advantages, susceptible to a myriad of interpretations, are growing at a far faster pace than the budget itself...
...Since two or more IRS personnel are involved in most audit decisions, the probability of encountering a technically competent IRS auditor appears to be less than fifty-fifty...
...A fringe benefit from VAT would be a related change in role for IRS...
...According to the Census Bureau, the number of U.S...
...28 March 1980: 171 enforce the income tax laws and collect the revenue, that the only way we can keep people in line, the only way we can keep them honest and paying their taxes, is to keep them afraid...
...But for the eighty percent of taxpayers who do not itemize, the benefits of subsidized borrowing are unavailable...
...the White House staff apparently believes that a balanced budget is smarter politics than lower taxes, an unusual choice in an election year, but one that could pay off handsomely in a nation where a taming of inflation is perceived as a likely result of a balanced budget...
...Total U.S...
...An IRS recovery of only half the revenue that escapes taxation in the underground economy would eliminate the budget deficit forecast by the Carter administration for fiscal 1981...
...Fifty-eight percent of all income escaped federal income taxation in 1975...
...The service is reluctant to discuss the effectiveness of its efforts in collecting corporate taxes...
...In terms of cost effectiveness, decisions to audit the vulnerable and to spare the protected will improve IRS's tax recovery rate, an important consideration for an agency that annually attempts to increase its appropriation from Congress...
...Only ten percent of total IRS audit effort is used in reviewing tax returns from the nation's 1,300 largest corporations...
...The rate of tax compliance for certain classifications of business returns is running fifty percent below that of the category now receiving maximum scrutiny...
...Manufacturers or merchants, who collect and remit the tax to the central revenue service, have their individual interests at stake in seeing that their suppliers pay the proper tax, since the size of their tax credit depends on the amount of tax already paid by suppliers...
...IRS maintains that only two Commonweal: 174 to three percent of all income derived from wages and salaries goes unreported, but a staggering forty percent of all income gained through self-employment escapes taxation...
...Michigan's experience with VAT parallels that of Western democracies in general...
...Although bracket creep, the process by which salaries are pushed into higher tax rates through inflation, is said to be damaging the lifestyle of the middle class, the amount of taxable personal income, i.e., individual income after all tax deductions, tax credits, etc., has remained stable relative to total personal income in recent years...
...The major obstacle to gaining taxes from these transactions is IRS's inability to acquire adequate data...
...The average taxpayer, confronted with an audit involving an extra $2,000 in taxes due, is frequently caught in a no-win situation...
...A total change in the system benefits no one in particular, but a partial change benefits some while damaging others...
...IRS will be responsible for the collection of the increase, and for the control of tax evasion, a practice believed to expand in periods of recession...
...In theory, any taxpayer can hire an attorney or a tax advisor for support under audit...
...In fiscal 1981, taxes paid by individuals to IRS will increase by an estimated $35.6 billion to a total of $274.3 billion...
...In theory, every taxpayer can claim one or more of these tax breaks which are enacted whenever Congress, in response to lobbying, decides to encourage certain activities through the tax laws, e.g., plant expansion, machinery purchase, certain investments, etc., or whenever Congress decides to ease certain burdens such as rising medical expenses or property losses...
...But these are minimal gains compared to the losses occurring to clients when they have legitimate deductions above the nationwide norms...
...The IRS record is equally poor in other areas of tax legislation...
...The ten percent rate is relatively unimportant...
...Like many tax analysts, Field links mounting problems in tax collection to a failure of nerve on the part of President Carter, who called the tax system "a national disgrace" in his first campaign, but has been unable to secure congressional cooperation on a major revision of tax structure...
...The marriage penalty is an arithmetic by-product of a progressive tax system...
...Expansion of random audits is resisted by regional IRS personnel, who prefer their options in the take-two, throw-one-back process cited earlier...
...Kurtz has tried to take some of the congressional heat away from IRS by increasing the number of "must audits," i.e., the random selection of a fraction of all returns,, cases which must be reviewed on a line-by-line basis, with a report on the outcome...
...tax rate...
...Twenty-five percent of all taxpayers used the long form in 1975, but only twenty per cent did so last year, a surprising shift to the short, nonitemized, 1040A form by taxpayers at a time when tax breaks are providing many new benefits for those who itemize...
...Critics of the service contend that the decline in taxpayer choice of the long form, and the consequent neglect of tax breaks, is due to rising frustration over a perpetually changing tax pattern, plus the unavailability of competent, lowcost assistance in completing the extra forms required to take advantage of tax break items...
...it monitors the audit involvement record of tax preparers, both corporate and individual...
...But the conservative opposition to VAT, e.g., Representative Conable's objection that a value-added tax on business could produce a great deal of revenue in a dangerous, "push-button," style, should suggest die possibility of a larger role for VAT in reducing individual taxes...
...Divorce in contemplation of remarriage and continued cohabitation is flouting the law," said former IRS Commissioner Donald C. Alexander in a 1977 announcement that the service would sue a couple who had divorced and remarried for three successive years...
...If the $26 billion in taxes due on this amount had been paid, the federal deficit for that year would have been cut in half...
...But a return with a major variation in one or more of the categories under analysis can be automatically kicked from the computer for individual scrutiny by an agent...
...This year an estimated $ 1 trillion, out of $ 1.8 trillion in total personal income, will go legally untaxed, due to tax incentives and other provisions legislated in recent years...
...what IRS really wants is an automatic, easily verified record of all forms of employment that now escape its attention...
...The American Bar Association has concluded that an accurate IRS audit occurs "solely by reason of chance...
...Representative Ullman would use these funds to cut $52 billion from the Social Security tax, $50 billion from individual income taxes, and $28 billion from the corporate tax...
...The announced corporate tax rate of forty-six percent hides the reality of nearly $43 billion in tax breaks available to American industry this year because of recent legislative changes...
...a taxpayer with annual earnings of $50,000 now pays an effective twenty percent tax on investments held one year or longer, a rate equivalent to the marginal tax rate on a worker earning $9,000 per year...
...An early surrender on the taxpayer's part, achieved by the least timeconsuming techniques, makes the service look good on the bottom line of increased revenue...
...During congressional hearings, IRS urges that certain tax benefits be ended, tax collection improved, and tax laws enforced according to the IRS interpretation, tasks which representatives seeking reelection do not wish to become identified with...
...We learned that a lot of things, instead of being loopholes, were capital incentives basic to making the system work," says Representative Al Ullman (D.-Ok...
...A single, flat rate of ten percent on all personal income would produce an amount of revenue equal to that secured under the current, complex system of credits, deductions, and incentives...
...strong evidence of a recession might be the key factor prompting the House to its usual pre-election behavior...
...at the end of a transaction each middleman could recover most of the amount technically imposed as a ten percent tax...
...Throughout the 1970s the U.S...
...In reality, IRS does not deserve its reputation for inefficiency and inaccuracy...
...Although IRS officials follow Commissioner Kurtz's practice of citing the U.S...
...thereby gaining the benefit of single tax status, which can be secured by one day of unattachment each year...
...IRS efforts to weaken the protective relationship between upper income taxpayers and their accountants are proving to be counterproductive...
...court defeats of individual taxpayers are much easier to achieve, and the cost-benefit ratio is generally better...
...Maximum tax breaks go to upper-income Americans who have large mortgages, high property taxes, and one or more tax shelters...
...IRS, however, has adopted a get-tough policy in the case of couples who escape the marriage penalty by annually marrying and divorcing...
...But for young unmarried couples who list their major possessions under joint ownership, and who purchase large amounts of life insurance in each other's name, the risks are minimal and the tax savings may amount to several thousand dollars per year at upper income levels...
...The deductibility of property taxes and interest payments on home mortgages cuts the actual charge for these items by forty-three percent for families with taxable income of $40,000, but only twenty-four percent for those with $20,000 in earnings subject to federal tax...
...But Newsweek financial columnist Jane Bryant Quinn charges that the Fenwick proposal would reestablish a "singles penalty'' eliminated by the Tax Reform Act of 1969...
...As suggested earlier, its 18,000 agents and auditors have a firepower advantage when auditing unassisted individuals, but that power evaporates when corporations or upper income taxpayers bring their specialists into the contest...
...Under the Carter budget, the federal tax burden, measured as a percent of the nation's total output, will reach a new post-World War II peak, going over 21 percent from 20.8 percent in fiscal 1980, and 20.1 percent in fiscal 1979...
...Tax legislation in 1978 increased the exemption on capital gains from fifty percent of profit to sixty percent...
...Because of new tax breaks, legislated on behalf of various individuals and corporations last year, the cost will increase by a projected $100 billion over the next four years...
...cannot continue to ignore the type of tax structure now adopted in almost all other industrialized powers...
...as a nation where people willingly pay their taxes, they have been directing considerable effort toward securing, on a non-voluntary basis, records of all taxable transactions in the nation...
...The tax code was drawn up by men who don't have working wives," claims Representative Fenwick, who views the marriage penalty as forcing people into fraud or cohabitation...
...In an effort to sell VAT to the public, some of its supporters, e.g., Representative Ullman, propose major cuts of fifty percent or more in Social Security taxes, while dispensing the balance of the new revenue to corporate relief...
...Once VAT is in place, it's an easy tax to raise," says Barber B. Conable, the ranking Republican on the House Ways and Means Committee...
...a rise of only 1 percent in unemployment lowers tax collection by $ 15 billion a year, and automatically triggers federal spending of $3 to $4 billion for unemployment compensation and welfare payments...
...Thanks to the constant availability of an inflation bonus, Congress can pass impressive looking tax cuts, generally in election years, which end up far short of supplying tax relief in real, inflationadjusted, dollars...
...But at sale time, the next purchaser would be obligated to also pay a ten percent tax on the price...
...has estimated that thirty-one percent of all tax break benefits go to the 1.4 percent of U.S...
...in 1976 they earned an estimated $4 billion that was not reported...
...Taxpayers under audit cannot count on any real support from commercial tax preparers...
...VAT's introduction would be the biggest change in the federal tax system since 1913...
...What makes the U.S...
...The president has hedged his opposition to a tax cut by indicating that, if a tax cut must occur to combat a clear recession, he prefers a rollback in the Social Security tax increase now scheduled for January, 1981, a rollback that theoretically would provide an equal benefit to workers and to employers...
...Sunset laws, which would require a periodic review—and possible elimination—of all major tax breaks, are favored by President Carter as a device to end benefit creep for corporations...
...Many newly married, two-paycheck couples are shocked by the discovery that the second paycheck is not taxed on its own: it is taxed at the point in the progressive tax brackets where the first income ended...
...IRS wants to meet individually with a larger number among the 92 million citizens who file, and it is seeking funds from Congress to hire 1,500 additional tax examiners as a supplement to its staff of 18,000 agents and auditors...
...In almost all cases, an accountant or a tax law specialist will opt for the long form, plus whatever special situation forms are necessary to arrive at their least possible payout of taxes...
...Congress, Chairman Al Ullman (D.-Ok...
...Under current law, anyone accepting a fee for preparing a tax return must submit an identifying number with each tax report prepared, making it possible for IRS to pull from its computer all the tax returns prepared by a particular individual or by a firm...
...IRS has consistently failed to gain congressional approval for its plan to require withholding statements from student employees at colleges and universities...
...IRS personnel, whose civil service tenure makes it unnecessary to seek voter approval of their actions, can be cast as villains, forever squeezing dollars from taxpayers in illogical, capricious ways...
...On the basis of past returns, classified by region and by level of taxpayer income, IRS has compiled a list of average deductions and expenditures...
...Nothing is more central to the IRS strategy of tax collection than scaring the taxpayer," says Paul N. Strassels, a former tax law specialist at the national office of IRS...
...Treasury an estimated $170 billion this year, over four times the amount only ten years ago...
...The result has been to reduce most members of the springtime army of preparers into a corps of hesitant, fearful scribes who must follow the path of least variation from national averages in order to avoid harassment by IRS...
...The corporate advantage in tax payment, relative to individuals, is justified by the Carter administration as necessary to lower inflation and to increase productivity...
...marriage rate in recent years...
...In that case, however, progressivity in tax rates would disappear from the nation's personal income tax, a move which would violate the sense of equity in taxation upon which the system is theoretically based...
...An individual return with entries at or near the norm on a line by line basis will not receive special attention from the computer when it is filed...
...Billions for business There is more cohesion in the political forces behind tax changes that would benefit business...
...The arsenal of corporate tax expertise helps to entrench IRS in its role of villain vis-a-vis average taxpayers...
...a computer selected audit is more likely to be among those returned to the safety of the shredder if it bears the signature of a recognized professional...
...success in tax litigation...
...nation...
...IRS officials privately concede that the $3001 tax credit, available to homeowners who invest in various forms of insulation, is practically a $300 gift to anyone who fills in the appropriate line on a tax return...
...The less affluent must rely either on their own ingenuity in translating the convoluted language which accompanies their tax return form, or else turn to the network of commercial preparers...
...New problems for the IRS Major changes in the tax laws, whether oriented toward corporations or individuals, translate into major collection problems for IRS Besides the individual income tax, which accounts for forty-five percent of every revenue dollar gained by the government, IRS collects Social Security tax (thirty percent), corporate income taxes (twelve percent), and excise taxes (six percent...
...The preparer can also be expected to identify a number of tax-reducing items that would otherwise escape the attention of the typical taxpayer...
...is among a small number of Western industrialized nations which does not use VAT (Switzerland is the only European exception), a tax which places a levy of five to fifteen percent on most products as they change hands on their way to the marketplace...
...The nation's tax courts now agree when IRS says that its employees should not be relied upon when they give advice...
...European business firms are not suffering under VAT, and European workers do not have the funding of their social programs confined to whatever revenue can be raised from a payroll tax...
...In an attempt to gain public support for advance reporting of all income directly to IRS, the service last year took the unprecedented action of releasing its estimates on taxpayer cheating...
...the equal share, ostensibly paid by management, is in reality paid by the employee, since the combined tax rate of 12.26 percent becomes part of the cost of hiring a worker, thereby affecting the total number of workers employed...
...IRS has not had much success in gaining a similar level of tax-paying compliance from the millions of self-employed Americans who are not subject to the withholding of future taxes by a third party...
...Further distortion of objectivity results from the discretionary power of IRS personnel who, in hot pursuit of one taxpayer, are permitted to push buttons to summon returns from individuals presumably connected with the case under review...
Vol. 107 • March 1980 • No. 6
