Withall the talk about reducing the federal deficit perhaps it is time to revisit arecommendation I made back in 2008.
TheInternal Revenue Service often cannot collect outstanding liabilities becausetaxpayers can't afford to pay them - and taxpayers can't afford to pay thembecause the amount is too high due to accrued penalty and interest. An initial outstanding tax liability of$5,000 could easily mushroom to $15,000 or more over the years with constantaccrual of penalties and interest. The endresult in many cases is that the IRS writes off the entire amount due.
Obviouslythe IRS could never permanently remove penalties and interest. If they did taxpayers would have nomotivation to file and pay their taxes on time.
Theanswer lies in a one-time temporary Federal Tax Amnesty, similar to state taxamnesty programs that have been highly successful in the past. Such a program would –
· generatemillions, if not billions, of dollars for the government,
· allowa great many taxpayers to get rid of the IRS cloud from over their heads,
· permitthe IRS to "close the books" on a substantial number of overdueaccounts, and
· encouragethe filing of delinquent returns. Everyone wins!
Hereis how a Federal Tax Amnesty Program would work -
Theamnesty would apply to all federal taxes –
*Individual income taxes, the Alternative Minimum Tax, and the various"other taxes", such as self-employment tax, included on the Federal1040.
*Corporate income taxes and the corporate AMT.
*Payroll Taxes.
Otherfederal taxes could be added to the list at the discretion of Congress.
TheIRS would begin with the original outstanding tax liability only (no accruedinterest and penalties would be included) on all previously filed federal taxreturns that are not currently part of a criminal prosecution. From this they would apply all appropriateamounts to date from direct taxpayer payments, “garnishments” of subsequentfederal and state tax refunds and rebates, other federal offsets, etc. against theopen liability. None of these paymentswould be applied against previously assessed penalty and interest; they wouldall be used to reduce the original “principal”.
Taxpayerswould have 3 or 4 months from the date of the initiation of the Amnesty programto pay the net outstanding tax liability without any penalties and interest.
Atthe same time, individuals, corporations and other businesses who have notfiled certain income, payroll or other tax returns could do so during theamnesty period and pay only the tax due, with no penalty or interestassessment. So if you did not file your2009 (or 2005 for that matter) Form 1040 (or appropriate business or payrollreturn) at all because you owed $2,000, you could do so now and pay only$2,000.
TheIRS would mail to all delinquent taxpayers an itemized “bill” for theoutstanding tax due under Amnesty based on their records, so it would be clearjust what needed to be paid.
Ifan open tax liability is not satisfied in full, or a delinquent return is notfiled, during the Amnesty period a higher penalty and/or interest rate wouldapply to the remaining outstanding balance – a further incentive to pay upduring the program.
Thiswould be a one-time only offer. Thelegislation creating the Federal Tax Amnesty Program could so state, or itcould state that the federal government would not be able to institute anotherAmnesty fifteen (15) or twenty (20) years after the end of the current amnestyperiod.
Congresshas looked at a Federal Tax Amnesty Program in the past. The Congressional Joint Committee on Taxationhad released a report concluding that amnesty would ultimately hinder taxcollection and reduce net revenue. Thereport indicated that individuals would become less likely to pay their taxesin future years, perhaps in expectation that government would once again writeoff interest and penalty fees.
Ido not agree. The concerns expressed bythe JCOT regarding reduced payment in anticipation of a future amnesty have notproven to be a problem with the various state programs. Besides this would be advertised as aone-time only offer.
IRScollection activity would not cease or slack off once the initial program hascompleted in anticipation of future amnesties. If anything the Service shouldbe more aggressive in its collection efforts after the amnesty period ends.
TaxAmnesty is aimed less at tax cheats and more at honest Americans who have beenso overwhelmed by the accrual of interest and penalties that they walk awayfrom their tax debt altogether. It is avariation on the current Offer In Compromise program.
All,or perhaps half, of the monies raised under the Federal Amnesty Program could bedirectly earmarked to pay down the federal debt, and the legislation could soindicate.
Sowhat do you think?
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