If you don't take care of your taxes, you risk some pretty expensive fines and penalties. Some of those amounts are fixed, like $195 per partner per month for failing to file your partnership return. Others are based on the actual tax due, like the 10% penalty for failing to file employment taxes. If the IRS has to come after you, they can slap liens on your home or other property. They can impose levies to pluck back taxes from your paycheck, your bank account, or your retirement plan. They can even seize your assets and auction them to collect their pound of flesh.
Having said all that, would it surprise you to
learn that there's someone with a "Get Out of Jail Free" card for not
paying his taxes? Would it surprise you even more to learn that it's
Uncle Sam himself?
The Treasury Inspector General for Tax
Administration ("TIGTA") is an independent board that oversees the IRS.
Their job is to audit, investigate, and inspect the tax system itself,
as well as to prevent and detect fraud, waste, and abuse within the IRS
and related entities. Last month, the TIGTA issued a report with a bland
and vague title: A Concerted Effort Should Be Taken to Improve Federal Government Agency Tax Compliance. But that deceptively bureaucratic name masks a pretty outrageous conclusion:
"Federal agencies are exempt from paying Federal income taxes; however, they are not exempt from meeting their employment tax deposits and related reporting requirements. As of December 31, 2011, 70 Federal agencies with 126 delinquent tax accounts owed approximately $14 million in unpaid taxes. In addition, 18 Federal agencies had not filed or were delinquent in filing 39 employment tax returns. Federal agencies should be held to the same filing and paying standards as all American taxpayers."
Fourteen million bucks might not seem
like a lot compared to our sixteen trillion dollar debt. But believe it
or not, the problem is bad enough that the IRS has an entire unit,
called the Federal Agency Delinquency ("FAD") Program, just to collect delinquent taxes from other federal agencies!
How well do they do? Last month's report took a look at the December
2008 "FAD list" of 132 delinquent accounts to see what had happened
through December, 2011. The TIGTA found that just 33% of those agencies
had paid their employment taxes. 30% of those accounts were still open
and unresolved, three years later. Even worse, 36% of those accounts had
actually expired; meaning the IRS won't ever collect those balances.
"FAD" unit sounds like a real pit bull, right? Well, they might be, if
they had any leash. IRS Policy Statement 2-4 says the IRS can't assess
interest or penalties against delinquent federal agencies. And even if
they could, Comptroller General Opinion B-161457 says that the agencies
aren't authorized to pay them!
You might ask yourself why it even matters whether the government pays taxes to itself. We've all heard that people who live in glass houses shouldn't throw stones. That age-old advice seems especially appropriate here. We're in the home stretch of an election centered largely on the role we want entitlements to play in our society. And every time a federal agency short-changes its payroll tax obligation, it cheats the Social Security and Medicare trust funds of much-needed dollars. It hardly seems controversial to ask Uncle Sam to set the best example possible!
K.R. Hoffman & Co., LLC, counsels Entrepreneurs, Professionals and Select Individuals in taking control of their taxes, and businesses. Discover how we can help you overcome your tax and business challenges. To start the conversation or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday from 8:30 a.m. to 1:00 p.m. for a no cost consultation, or drop me a note.
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