VITA: Retake Money from the Government to Give to the Poor

I’ve finished my initial set of classes for the Volunteer Income Tax Assistance program. I hope to be able to help a bunch of people get their money back.

According to an audit of IRS Taxpayer Assistance Centers (TACs) , programs like VITA can be more helpful than they are correct or accurate:

, Treasury Inspector General for Tax Administration auditors made 34 anonymous visits to 26 TACs nationwide in an attempt to have a tax return prepared. These visits resulted in 23 prepared tax returns. Results show taxpayers do not always receive proper and accurate customer service assistance during tax return preparation.…

IRS employees incorrectly prepared 19 (83 percent) of the 23 tax returns prepared during our visits. If 17 of the 19 incorrectly prepared tax returns had been filed, the IRS would have incorrectly refunded approximately $32,000. If the remaining 2 incorrectly prepared tax returns had been filed, the IRS would have inappropriately withheld $2,400 in tax refunds.

Note that this is an audit of IRS employees in IRS TACs — the volunteer programs like VITA are a second line of defense, staffed by people like me, who are amateurs with only a couple of classes to back us up. I wonder whether we’ll be able to compete with the IRS employees’ 17% accuracy rate.

Today’s inspiring read: Against All Odds by Adam Hochschild from ’s Mother Jones magazine.

“You can hold back from the suffering of the world, you have free permission to do so and it is in accordance with your nature, but perhaps this very holding back is the one suffering that you could have avoided.” ―Franz Kafka

In a recent report published for Congress by the Taxpayer Advocate Service, an overseer organization of the IRS, the figure for the total estimated tax gap attributed to noncompliant taxpayers was given as $310.6 billion. (The tax gap is defined as the difference between total earned income and total income reported.)

A further breakdown of the numbers shows $30.1 billion was lost because people failed to file tax returns, $248.8 billion was lost to underreporting income and $31.8 billion was lost to underpaid taxes. In effect, the IRS concludes that a full 15 percent of taxpayers are noncompliant, though not necessarily criminals. Tax fraud or evasion by individuals, as opposed to corporations, is overwhelmingly responsible for the tax gap, especially from incomes based on easily concealed cash transactions.

I wrote about a neat little tax dodge that some companies were using: They hunt up a government or other organization that’s got some big hunk of stuff that’s depreciating without giving them any tax benefit. They take that big hunk of stuff off of their hands, for a fee, and then lease the big hunk of stuff back, for a somewhat lesser fee, while writing off the expense of their new asset on their tax forms so as to lower their taxes (presumably by somewhat more than that somewhat lesser fee).

Our local newsweekly covers what happened when San Francisco’s Municipal Railway tried this trick in . It seemed like a great idea:

[T]he agency received $43 million in a complex “lease/lease-back” deal that allowed private investors to depreciate (that is, to write off the wear and tear suffered by) 118 rail cars for federal income tax purposes. Muni paid out $10 million to lawyers and financial consultants to prepare the deal, and kept $33 million. The investors gained a tax advantage that presumably was valued far in excess of the $43 million that Muni received…

But then things got sticky. The US Treasury Department started complaining to Congress about scams like this. Now it looks like they’re going to make them illegal, and send auditors out to shut down the ones that have already been concocted. And it looks like the tax-evading investors had better lawyers than did SF Muni:

In entering the tax-shelter deal, Muni signed a contract that, as interpreted by a tax expert I spoke with, would make San Francisco responsible for the benefits of the tax break to the private investors for the 25-year life of the deal, should the IRS ever disallow the shelter.