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The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers, with the smallest possible amount of hissing.”
~ Jean-Baptiste Colbert
According to a May 5, 2015 report by J. Russell George, the Treasury Inspector General for Tax Administration (referred to as TIGTA) , from Oct. 1, 2003 through Sept. 30, 2013, 1,580 IRS employees were found to be willfully tax noncompliant. These cases included willful overstatement of expenses, claiming the First-Time Homebuyer Tax Credit without buying a home, and repeated failure to file required federal tax returns on a timely basis.
Over this 10-year period, 620 employees (or 39 percent) with willful tax noncompliance were terminated, resigned, or retired. For the other 960 employees (61 percent) with willful tax noncompliance, the proposed terminations were mitigated to lesser penalties such as suspensions, reprimands, or counseling. TIGTA’s review found that in some cases, employees with similar violations received different discipline.
Section 1203 of the IRS Restructuring and Reform Act of 1998 provides that the IRS should terminate the employment of any IRS employee if there is a final determination that the employee committed certain acts of misconduct, including willful violations of tax law, unless the penalty is mitigated by the IRS commissioner.
The IRS defines a willful act as the voluntary intentional violation of a known legal duty (such as timely filing of a tax return or accurate reporting of a tax obligation) for which there is no reasonable cause.
IRS Commissioner John Koskinen reduced proposed terminations in over 60 percent of the cases involving willful tax noncompliance by IRS employees to lesser penalties, such as suspensions, reprimands or counseling. The basis for the commissioner’s decisions to mitigate were not clear.
Some employees had significant and sometimes repeated tax noncompliance issues, and a history of other conduct issues. Management had also concluded that the employees were not credible, but the proposed terminations were nonetheless mitigated by the IRS commissioner.
What is really disturbing is that some of these employees even received cash bonuses, promotions, and paid time off while other employees who were terminated were rehired!
TIGTA recommended that the IRS commissioner should amend the existing policy on how Section 1203 cases are handled to include a requirement to document the analysis of evidence and the basis for the decision on whether or not to mitigate penalties to something less than termination.
The IRS agreed with TIGTA’s recommendation, noting it plans to review existing procedures to document the analysis of evidence and the basis for its decisions, and will consult with its General Legal Services on potential improvements to the transparency of the mitigation process while not interfering with the commissioner’s authority.
Rep. Diane Black, R-Tenn., member of the House Ways and Means Committee, weighed in on the report:
“While this report should not come as a surprise, given the misdeeds we have already witnessed at the IRS, it is nonetheless outrageous and unacceptable that the very agency tasked with enforcing our tax laws would knowingly retain employees who fail to pay their own tax bill.”
“Clearly this is another case of the Washington political class saying ‘do as I say, not as I do.’ "
Several important tax changes went into affect in 2014. Depending on your income, age, marital status, or whether you operate a business, you could be affected.
Tips and Tid Bits
During fiscal year 2013, the IRS collected almost $2.9 trillion in federal revenue and processed 240 million returns of which 151 million were filed electronically. Out of the 146 million individual income tax returns filed, almost 83 percent were e-filed. More than 118 million individual income tax return filers received a tax refund, which totaled almost $312.8 billion. On average, the IRS spent 41 cents to collect $100 in tax revenue during fiscal year 2013.
The IRS examined just under one percent of all tax returns filed and about one percent of all individual income tax returns during fiscal year 2013. Of the 1.4 million individual tax returns examined, over 39,000 resulted in additional refunds.
Seven states do not have a personal income tax. They are: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. New Hampshire and Tennessee do not tax wages. They tax investment income from stocks and bonds.
The IRS uses occupational codes to measure typical amounts of travel by profession. A tax return showing 20 percent or more above the norm might get a second look? Here are a few other red flags that can trigger an IRS audit .
Silly as it may seem, if you robbed a bank dung 2013, you had taxable income. Intentionally not reporting ill-gotten gains is considered tax evasion. The IRS doesn't care how we "earn" our loot as long as they get their cut, from a tax compliance standpoint of course. So, if you're selling drugs or scamming investors and not reporting the income, some day you could find yourself in the same predicament that Al Capone found himself in! Here are some of the top tax myths.