Monday, March 03, 2014

Swiss bank accounts are only the tip of tax-evasion iceberg

Billion dollar gold market in Dubai where not all was as it seemed Gold was plated in silver and metal worth billions was bought for cash at the bustling market run by Kaloti Group

... I should know better than 99% of humans walking the earth right now as Imrich  -  Swiss bank accounts are only the tip of tax-evasion iceberg 
Outrageous? The Senate Finance Committee’s report recommended telling the Justice Department to crack down harder on the offending bank, Credit Suisse. Unfortunately, tax evasion via Switzerland is a small sliver of a much larger problem that’s known as the tax gap – the difference between what Americans owe in taxes each year and what they pay voluntarily on time.
Congress seems much less willing to address that problem. Potentially, it’s a huge source of revenue that requires no enabling legislation. The IRS estimated the gap to be $450 billion a year in 2006 (and it's probably much higher now).  If the federal government could recoup a third of that 2006 amount, it would have cut the fiscal year 2013 deficit by 22 percent.
But Congress isn’t just disinterested in recouping that amount. It’s pulling the other direction, cutting back funding for IRS agents, who bring in unpaid taxes many times their salary. Why? The best way to answer that question is with another question. Who benefits from an inadequately funded IRS?
It's not America’s wage earners, whose income and FICA (Social Security and Medicare) taxes are collected through payroll. Those taxes plus the payroll taxes paid by their employers provided about 70 percent of the revenue collected by the IRS for 2012.
Collecting that money is easy.  The IRS and state governments rely on businesses to withhold taxes from their workers' paychecks and to deposit their own payroll taxes in a timely fashion as well. Employers who fail to collect and hand over payroll taxes are obligated for those taxes plus penalties and interest. When that failure is willful, the responsible parties are personally liable for the amounts.
It’s not so easy to collect taxes owed on income that's not subject to withholding, especially if that income is also not reported on a W-2 or 1099 form. These are typically the taxes owed by independent contractors, whose income frequently goes unreported and by small business owners, who sometimes knowingly mischaracterize their company income on Schedule K-1, recording it as profit rather than salary to avoid payroll taxes. This mischaracterization, called the “S corporation loophole,” is estimated to result in a loss of $10 billion to $15 billion in taxes over the next 10 years.
Uncollected taxes are also owed by wealthy taxpayers who earn underreported investment income -through foreign entities and accounts in foreign financial institutions.
Cracking down on such recalcitrant taxpayers requires IRS enforcement. A recent successful example was the IRS’s  original targeting of unreported foreign income of wealthy taxpayers in undisclosed bank accounts in Switzerland. This was followed up with a voluntary disclosure program  resulting  in the collection of untold billions of dollars in enforcement revenue – a few wealthy individuals even went to jail and more than 38,000 people came into US tax compliance.
But IRS enforcement activities are chronically undercut by cuts to the IRS budget. For fiscal years 2011 and 2012, Congress reduced IRS’s annual budget by almost $1 billion, an 8 percent decrease at a time when the total population of business and individual tax filers increased by 4 percent.  The IRS budget was cut by another $600 million for 2013 as a result of sequestration and then Congress  slashed it again by another $526 million with its omnibus appropriations bill resulting in still fewer IRS personnel. (In perhaps the most egregious underfunding example, Congress failed to fund the IRS’s capital improvement budget for 20 years forcing the IRS to do its job for decades using antiquated computers– a “punishment” that began after President Nixon lost an IRS audit resulting in a $215,000 tax bill.)
Between fiscal years 2010 and 2013, the number of full-time IRS personnel fell from 95,000 to 87,000, according to the National Taxpayer Advocate’s 2013 report to Congress, and the agency's training budget was slashed from $172 million to $22 million, an 87 percent decrease. The report points out such cuts are counterproductive since each dollar appropriated returns $255 in revenue.