Posts tagged as:

taxes

Law enforcement for profit to take another big leap forward? [Washington Post]:

The Internal Revenue Service would be required to turn over millions of unpaid tax bills to private debt collectors under a measure before the Senate, reviving a program that has previously led to complaints of harassment and has not saved taxpayers money.

The provision was tucked into a larger bill, aimed at renewing an array of expired tax breaks, at the request of Sen. Charles E. Schumer (D-N.Y.), whose state is home to two of the four private collection agencies that stand to benefit from the proposal.

It requires all “inactive tax receivables” to be assigned to private debt collectors if the IRS cannot locate the person who owes the money or if IRS agents are unable to make contact within a year.

The idea has been tried twice before, but was discontinued both times after poor results including net losses on the program. Nina Olson, who holds the position of Taxpayer Advocate in the U.S. government (and is no relation), strongly opposes the program, noting that some of the money would be recouped by the Treasury anyway through means such as future withheld refunds without the need for paying 25 percent contingency fees to the middlemen. Bounty-hunting freelancers are more likely to resort to tactics such as day-and-night harassing calls, and have less flexibility to work out payment plans for those getting back on their feet after reverses or, in the case of estate taxes, heirs who may have not yet received the inheritances from which they need to pay the tax due.

Compare many state governments’ practice of putting out plaintiff’s-side litigation opportunities to private lawyers at contingency fee, which has created a durable lobby for hardball extractive lawsuits of dubious social benefit as well as showering large sums on law firms that already are or soon become influential political players in their states.

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“How Breast Implant Size is Relevant to Tax Policy” [Alan Cole, Tax Foundation]

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Huge win for justice and good sense: facing a mounting public furor, “The Social Security Administration announced Monday that it will immediately cease efforts to collect on taxpayers’ debts to the government that are more than 10 years old.” [WaPo] Credit goes above all to the Washington Post and its reporter Marc Fisher for exposing the most outrageous features of the IRS’s refund-interception program last week, as recounted in this space; I like to think I helped as well by beating the drum early and repeatedly since then with Cato’s help. Overlawyered’s Facebook post on the subject has been seen by more than 60,000 people and shared more than 700 times in the past few days. (Have you liked us yet?)

The next step should be to establish for the public record how the provision in question got slipped into the farm bill, and at whose behest. Congress’s refusal to be forthcoming on this topic speaks volumes about its lack of a felt sense of responsibility toward the people it represents.

And a theme I’ve been repeating for almost as long as I’ve been writing about law: statutes of limitations developed in civilized legal systems for a reason. They protect us not only from cost, uncertainty, and the misery of legal process, but from injustice of a hundred other kinds, and they protect society itself from spiraling into a legal war of all against all. Stop trying to abolish them!

More: Ed Morrissey, Megan McArdle. And here’s a Cato podcast just out on the subject in which Caleb Brown interviews me on the topic:

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Marc Fisher reporting in the Washington Post:

Across the nation, hundreds of thousands of taxpayers who are expecting refunds this month are instead getting letters like the one [Mary] Grice [of Takoma Park, Md.] got, informing them that because of a debt they never knew about — often a debt incurred by their parents — the government has confiscated their check.

The Treasury Department has intercepted $1.9 billion in tax refunds already this year — $75 million of that on debts delinquent for more than 10 years, said Jeffrey Schramek, assistant commissioner of the department’s debt management service. The aggressive effort to collect old debts started three years ago — the result of a single sentence tucked into the farm bill lifting the 10-year statute of limitations on old debts to Uncle Sam.

No one seems eager to take credit for [the provision]…

While a variety of stale disputes are involved, some of the most controversial involve alleged Social Security overpayments to long-deceased parents that the government says it has a right to reclaim because they contributed or might have contributed to the support of now-grown children. Targets say they are helpless to contest the seizures in many cases because financial records have long since been thrown out, in line with the IRS’s own guidelines which do not encourage the keeping of financial records for decades. State as well as federal refunds can be intercepted, and the taxpayer who wants to argue must sue to get the money back.

A spokeswoman says the feds attempt to contact targets about the claims before attaching refunds, but the Washington Post’s report cites examples in which notice was sent to decades-old post office boxes or addresses, even though both tax and Social Security authorities held current correct addresses for the taxpayer.

Need it be added that many of the methods the government is using would be deemed unlawful if asserted by creditors trying to collect private debts? To name only the most egregious of the problems, children cannot ordinarily be made to pay parents’ debts, even when there is a writing by the parent acknowledging the debt as valid (which will ordinarily be lacking in after-the-fact assertions of overpayment).

It is at most a minor ironic consolation that taxpayers are likely to react to these outrageous tactic by scaling back hard on the widespread practice of voluntary over-withholding, reasoning that it is unsafe to build up a big refund if authorities can snatch it away for unpredictable reasons with little hope of recourse.

P.S. More from J.D. Tuccille, Reason.

Update: Victory! Social Security Administration announces Apr. 14 that it’s suspending collection of debts older than 10 years (& welcome Andrew Sullivan readers).

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Kind of like Venezuela with Old Bay seasoning: “Responding to a threat that the “House of Cards” television series may leave Maryland if it doesn’t get more tax credits, the House of Delegates adopted budget language Thursday requiring the state to seize the production company’s property if it stops filming in the state. … Del. William Frick, a Montgomery County Democrat, proposed the provision, which orders the state to use the right of eminent domain to buy or condemn the property of any company that has claimed $10 million or more credits against the state income tax. The provision would appear to apply only to the Netflix series, which has gotten the bulk of the state credits.” [Baltimore Sun, Washington Post, earlier citing David Boaz]

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Maryland roundup

by Walter Olson on March 22, 2014

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FATCA is working!

by Walter Olson on February 20, 2014

The number of Americans who’ve turned in their passports and renounced citizenship has increased more than tenfold in five years, to 3,000 in calendar 2013. [USA Today] Earlier on the burdensome expatriate tax and regulation measure here, here, here, and generally here.

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February 20 roundup

by Walter Olson on February 20, 2014

  • “Woman Arrested Nine Years After Failing to Return Rented Video” [S.C.: Lowering the Bar, more]
  • “Why India’s Ban Against Child Labor Increased Child Labor” [James Schneider, EconLib]
  • “I’ve never seen an attorney general sanctioned.” Court hits Nevada AG Catherine Cortez Masto with sanctions after collapse of robosigning suit against mortgage servicer that state hired D.C.’s Cohen Milstein to bring [Daniel Fisher, update (case settles)]
  • Another review of the new collection The American Illness: Essays on the Rule of Law (Frank Buckley, ed.) [Bainbridge, earlier]
  • They would be major: “The Gains from Getting Rid of ‘Run Amok’ Occupational Licensing” [David Henderson]
  • E-cigarettes could save lives [Sally Satel, Washington Post]
  • How incentives to avoid tax can lead to social tragedy, in this case via ABBA stage outfits [Guardian]

It’s a win for small tax return preparers and a loss both for unilateral assertions of agency power (Congress had never given the Internal Revenue Service the power it claimed here) and for big national tax-prep chains, which had supported the regulation with a view to suppressing “kitchen table” competitors. Andrew Grossman analyzes for Cato, and the Institute for Justice, representing independent tax preparers, can take due credit for a big legal win.

More: H & R Block’s CEO — of course! — is unhappy. And John Steele Gordon explains the role of the Horse Act of 1884.

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Before you surrender entirely to schadenfreude, reflect that the payout will come at the expense of other taxpayers. [Home Maxwell; Kay Bell, Don't Mess With Taxes] More: Lowering the Bar.

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“Estate Says $2,105, IRS Says $434,000,000.” [TaxProf]

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At Treasury’s mercy

by Walter Olson on November 14, 2013

How “money laundering” regulations give the U.S. Treasury power to destroy foreign banks [Stewart Baker, Volokh] Meanwhile, if Canadians imagine that the Foreign Account Tax Compliance Act (FATCA) is something only Canadian-Americans need to worry about, they should think again [Maclean's]. Excerpt:

To say that FATCA is controversial is an understatement. The law is so complex and onerous to implement that some foreign banks have reportedly kicked out their U.S. clients in order to avoid dealing with it. Americans living abroad are queuing to give up their U.S. passports over it. The other problem with FATCA is that it asks foreign banks to do things that are often illegal in their home countries, such as passing on certain private information.

Earlier on “know your customer” here and on FATCA here.

Speaking of the Institute for Justice’s legal work: “The Obama administration on Tuesday defended its effort to regulate the tax return preparation business for the first time in U.S. history, basing its case largely on a 19th century law dealing with horses lost or killed in the Civil War.” Earlier here. [Reuters]

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Many previous posts in this space have addressed the Foreign Account Tax Compliance Act, which presumes to regulate overseas banks and financial institutions that do business with Americans, and which goes into effect next June. So it’s nice to see the Paper of Record running a reasonably informative introductory piece on its problems, even if at too late a date to get the thing stopped. “Global banks and investment firms have made their dislike of the law known, though they are reluctant to speak out individually” — and how common that last point is these days, given the retaliatory potential of the U.S. government’s vast regulatory and enforcement apparatus for a business that does dare to speak out. Still, a few critics are willing to show their heads above ground, including

Georges Ugeux, a dual Belgian-American citizen, a lecturer at Columbia Law School and the founder of Galileo Global Advisors, an international business consulting firm. He described the law as “bullying and selfish.” The United States, he said, “is acting outside its borders as if they were its home.”

Sen. Rand Paul of Kentucky has introduced legislation to roll back part of the law, and there is a site called RepealFatca.com. [Lynnley Browning, NYT via TaxProf]

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Many — most? — Des Moines taxpayers probably don’t care all that deeply whether the city extracts taxes via one broad-based method or another. But due to class-action procedure and the barriers it erects to opting out, they all get to be plaintiffs in the resulting suit, and the lawyers (self-) appointed to bring the case are expecting to pocket 37 percent, or $15 million, of the $40 million changing hands, a sum that could amount to $1,400 an hour. [Ryan Koopmans (On Brief blog), Des Moines Register, earlier]

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The Washington Post splashes an investigative story about the tax lien business, in which outsiders buy up delinquent municipal property tax liens sometimes amounting to mere hundreds of dollars, then roll in lawyers’ fees and costs that can push up the bill into many thousands, eventuating in the foreclosure of family homes. The narrative is less than clear about exactly how the process works, and even leaves the impression that a tax lien purchaser owed, say, $6,000 can walk away with all the proceeds from the foreclosure of a $197,000 house without having to hand any of it over to mortgage holders, let alone the original owner. And some of the solutions offered (let’s not allow lien foreclosures on elderly people!) would have unintended consequences that are also, to be polite, underexplained. Still, enough of the story is there that an important general principle comes through: it’s dangerous for the law to put opportunistic actors in a position to run up $450/hour legal fees pursuing adversarial process that might not actually have been needed to vindicate their interests.

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..a surge in U.S. citizenship renunciations by expatriates [Bloomberg] The United States is “the only nation in the Organization for Economic Cooperation and Development that taxes citizens wherever they reside,” a departure whose disincentive effects are magnified now that Congress is insisting on regulating foreign financial institutions that deal with Americans. Earlier on FATCA here. More: Dan Mitchell, Cato.

With enough enforcement linkage between different branches of government, do we even need a Panopticon? “Beginning this year, [New York] drivers who owe more than $10,000 in state taxes face losing their license until the debt is paid.” Does this mean persons who have fallen behind on taxes won’t be able to get to their jobs to pay off the arrears? Well, it seems “there is a ‘restricted’ license that you can apply for in the event that your license is suspended” which “would allow you to commute to and from work only.” How this is to be enforced — whether the hapless motorist will be nailed for stopping off for a loaf of bread on the way home, or venturing out for a job interview — is your guess as well as mine. [Kelly Phillips Erb, Forbes]

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