McCarthy and the House Speakership

[DJQuag]

Conservatives - The national debt is important.

Also Conservatives - Increased funding to find people who are dodging taxes, and not paying their share to national expenses, is a gross injustice.

[Wayward Son]

He was telling people that they did it. That they defunded the new agents/employees.

Last night, my Republican colleagues and I defeated the Democrats' 87,000-person IRS army.

- Andy Biggs (R-AZ)

He must be using a unique definition of "defeated," when the army is still marching. 

[DJQuag]

I grew up in Arizona. Trust me. You gerrymander up a mythical House district and you'll find all of the crazies you'll ever need. This *censored* didn't just get voted in, he won in a landslide.

[Seriati]

I can't remember the case, but there was a similar one where a woman inherited money and wasn't even aware of a filing requirement (the rule didn't come up on turbo tax for many years in which it applied).  The government is trying to take half of her inheritance as a penalty.  Thats even though there is no actual tax liability owed in respect of the inheritance or the account even if it had been reported.

That's the kind of "cheating" they actually go after.

So I found the case I was thinking about - Toth v. United States.  The Supreme Court just denied rehearing it, here's a link the 3 page dissent of that denial https://www.supremecourt.gov/opinions/22pdf/22-177_d0fi.pdf.

Ms. Toth, who is in her 80's, was left $4.2 million in a Swiss bank account by her father (the dissent explains that he used a Swiss bank account as a safety measure after he fled Germany in the 1930's, which is reasonable).  It also explains why he told her she should keep it there.  Ms. Toth says she didn't know about the FBAR filing requirement and as evidence, we know that the IRS became aware of the account when she made a remedial filing disclosing it.  It's not in the short dissent, but there was no outstanding tax liability on the money (i.e., if she had reported it in a timely manner, she would have owed no taxes on it).

Nonetheless, the IRS assessed her a civil penalty of $2.1 million (half the account) and added penalties to the $2.1 million of $1 million.  They asserted that her original failure to file was "willful" because they don't accept lack of actual knowledge as a defense.  If you look at the dissent, the SC refused to take up the case even though it violates the Constitution's prohibition on excessive punishments.  The government argued and the first circuit agreed that because this is a "civil" fine and not a "criminal" fine, it is not a penalty that is subject to that Constitutional limit.

In other words, the Founders must have only cared about excessive criminal fines, but were perfectly accepting of the exact same excessive penalty provided the government doesn't label it criminal.

Honestly I'm baffled by this result.  There is a circuit split on this issue, I can only imagine that this is an instance of the court wanted a "better" case to resolve the issue at a future date.  But this is what the IRS thinks is an important use of resources.  Punishing an old lady, not because she didn't pay her taxes, but rather because there is a big fine to be grabbed.

[jc44]

I'm going to attempt to defend what I also see as a completely egregious fine - if tax had been payable on the sum then sure it might have been reasonable but, for once, I have to agree with you that this is unfair. For what it is worth I'm perfectly prepared to believe that the SC at al. are completely correct in the law (law not having any requirement to be 'fair'). I can also see that the IRS, having found themselves in a court case, determined that they needed to win it in order to prevent future, less clearly stupid, cases costing them (and the taxpayer) time and money. So its a pig, in a "fair" world the IRS would have won the case and then let her off anyway - sadly tax services aren't like that.

However - 1 crap example does not tell the whole story. She was undoubtedly an easy target, but if you want to try to tax the very rich you need more resources, they already have armies of lawyers and accountants obfuscating things in maybe legal ways and it takes time & effort to break them and they do have to simply process everyone elses returns, which I imagine takes the bulk of their resources as a fixed cost. So you might hope that if you add funding it would in the main go towards getting at the harder targets.

[Seriati]

jc44, I only cited to one example, if you go looking for FBAR cases you will find an enormous amount of examples.  There are cases where a person would have owed a tax, but even in some of those the FBAR fines exceed the amount of the tax by enormous amounts (sometimes by several factors).  There are enumerable cases where the IRS assessed that it was a willful violation and applied the maximum penalty (50% of assets plus penalties), despite everyone acknowledging that the person in question did not know of the FBAR requirement (as I said it didn't appear on things like Turbotax for years and even many accountants missed it), and made remedial filings as soon as they became aware.

There are also enumerable cases where the egregious fines came from the number of such accounts.  In some jurisdictions when you open even a simple checking account, the banks end up opening multiple "accounts" as a technical/legal matter.  Those accounts may have nothing in them, or tiny minimum balances, or may be purely transitional accounts, yet failure to report them - even on a non-willful basis - lets the IRS impose $10k fines (plus penalties) for each such account.  In many cases the IRS fine equals or exceeds the balances in the accounts, despite that the IRS agrees that the individuals failure to report was not willful. 

That's just one tiny part of an abusive tax regime.  If any of you took the time to actually look into this, it would absolutely disabuse you of the notion that the IRS adding more auditors is going to do anything but focus on those who are the least tax savvy.  They're going to target the middle class - over deductions and technical compliance with obscure requirements.  They're going to target those who get a windfall, it's no mistake that the IRS frequently goes after lottery winners, who are frequently not financially savvy persons, and ends up levying fines and taking big sums from them.  There is zero chance they're going to target or win cases against Soros, the Koch brothers, or anyone else who any of you think needs to "pay their fair share."

[Wayward Son]

There is zero chance they're going to target or win cases against Soros, the Koch brothers, or anyone else who any of you think needs to "pay their fair share."

There is one factor you are forgetting about the very rich, Seriati--many, if not most, of them are arrogant.

Many believe they are smarter than most people.  And many believe they are more privileged than others, because of their intelligence, stature, position, "because we create jobs," or whatever self-justification they decide upon.  Many don't believe the rules should apply to them.  They consider themselves the supermen of our world.

Which means they get sloppy.  Sure, they have accountants do all the work, but now and again they may give their accountants some "suggestions" on how to do stuff.  They go with the more "cutting edge" deductions that can save them money.  They like "innovative" theories that maybe no one else, or few others, have thought of.  And they believe they can outlast the IRS through delays and appeals.  So they are at times likely to do things that normal people would call "illegal."

So while middle-class people who are not as savvy about the IRS code may be the low-hanging fruit (although I wonder just how many middle-class tax payers have to worry about FBAR rules--I mean, do you have foreign bank accounts?  ), I am sure there are plenty of plump pieces that are higher-up on the tax scale to make it worth the IRS' while to go after.  When 30 percent of all earned income goes to 1 percent of the taxpayers, there is a huge temptation for cheating there.  And humans are not known for resisting temptation; ask any preacher.

[Tom]

If any of you took the time to actually look into this, it would absolutely disabuse you of the notion that the IRS adding more auditors is going to do anything but focus on those who are the least tax savvy.

I have actually looked into this, and I believe the IRS can indeed be focused on the biggest tax cheats as long as we keep it out of the hands of Republicans.

[jc44]

And whilst I don't have a citation for this I believe that the accepted figures in the UK are that the government gets back approx £6 for every extra £1 spent on HMRC (UK IRS). So from a sound financial basis you should spend more on enforcement. It is mostly politics that stops it.

[jc44]

I can't believe that I'm standing up for Seriati but actually I can trivially believe that many people who have to fill in US tax returns have foreign bank accounts. Simply having an American passport is enough to require that (as I understand it) so many people who live and work abroad (from the US) and may have done so their whole life have to do so - even just to say "I owe nothing". They will inevitably have "foreign" bank accounts.

[Tom]

I have a foreign bank account, actually. It's not that rare.

[Fenring]

I have a foreign bank account, actually. It's not that rare.

Hey were you featured in the Panama Papers? That must have been exciting.

[NobleHunter]

Though this seems to be a question of the law rather than enforcement. The solution is not to underfund the IRS but to change the rules to promote justice.

Also, you don't need thousands of new agents to do these kinds of cases. As you said, they aren't tax savvy, nor do they have the tax attorneys on speed dial. You need them to catch the tax that is being deliberately withheld through debatably illegal schemes.

[Wayward Son]

Good point, Noble.  If there have been an enormous number of FBAR cases in the news in the past few years, when the IRS was understaffed, then they are probably already doing quite a bit of enforcement of those rules, and don't require any more staff to continue to do so.