I.R.S. Commissioner Testifies on “Tax Gap”

Some news on the “tax gap” and on IRS enforcement efforts:

Appearing before the Senate Homeland Security and Governmental Affairs Federal Financial Management, Government Information and International Security Subcommittee on , IRS Commissioner Mark W. Everson delivered testimony concerning the growing “tax gap,” a term used to describe the growing disparity between the taxes owed the IRS and the taxes actually paid. Everson’s remarks focused on the issues surrounding noncompliance that the IRS believes contribute to the growing number of taxpayers failing to pay their taxes on time and in full. He also reviewed steps that the IRS is currently taking to curb the noncompliance.

Everson attributed the tax gap to a wide variety of problems, ranging from taxpayer misunderstanding, as well as intentional taxpayer underreporting and overdeducting, to IRS budgetary constraints, to unscrupulous tax practitioners. Despite the disparate causes, however, Everson said that the IRS is working on the tax gap and is making headway. He reported that, , the IRS increased its enforcement revenues from $33.8 billion to $43.1 billion. He predicted that the revenues collected from enforcement efforts will be even greater in .

In response to questions from members of the subcommittee, Everson emphasized that the focus has been on, and will continue to be on, higher-income taxpayers, corporate taxpayers and flow-through entities, the number of which, he explained, “have exploded.”

Why haven’t I heard about this before?

A little-noted provision in the tax relief package to aid victims of Hurricane Katrina is shaping up as a windfall for charity and a drain on government coffers.

It allows donors who make cash gifts to almost any charity to deduct an amount equal to virtually 100 percent of their adjusted gross incomes, double the normal limit of 50 percent of income. The tantalizing prospect has set off a financial scramble among some wealthy donors and charities vying for their dollars.…

Moreover, some donors may be able to use the provision to take deductions this year for gifts made in past years. When taxpayers have more charitable deductions that they can use in a given year, they may carry them forward to future tax years. This possibility may further dampen tax revenues.

“Congress intended this, but I’m not sure they understood how big the tab is going to be,” said Mr. Sharpe, who has become a national town crier on the issue. “There are just so many ways a donor can use this bill to maximize their charitable giving.”

Normally, you usually can’t eliminate your income tax simply by making large charitable donations. It looks like , though, the rules may be different. Alas, the New York Times article is full of quotes but very vague about facts and details, and they follow a proud policy of not providing links to sources of more information.

I looked around a bit more and found this summary:

On , President George W. Bush signed the Katrina Emergency Tax Relief Act of . For “qualifying contributions” made in cash to public charities , this bill temporarily suspends the 50 percent limitation applied to charitable deductions in any tax year. (Charitable deductions for cash gifts to public charities are limited, under current tax law, to 50 percent of the taxpayer’s “contribution base” — roughly the donor’s adjusted gross income in the year of contribution).

The Katrina bill also provides a temporary exception to the provision under current tax law that reduces deductions for qualified charitable contributions by 3 percent of the amount by which the donor’s adjusted gross income exceeds stated dollar amounts.

The temporary provisions of the Katrina bill (as applied to gifts made by individuals) are not limited to contributions made to public charities whose mission is directly related to providing hurricane disaster relief.

That’s much clearer. Charitable giving isn’t a tax resistance solution for most people, because you have to give away so much money relative to your income that if you don’t have additional assets to live on, you’ll be living very thinly indeed. (See The Picket Line .)

But — if you do have a lot of assets, but you thought your income was so high that there was no hope of getting under the tax line, there’s hope! Pick a good charity, give generously, and you’ll have the satisfaction of giving your hard-earned money to the good folks instead of to the Dubya Squad this year.

Thanks to Millennium Tremens for her kind review of The Picket Line:

…I finished off [my] job, received my pay, and now can live for a month or two without working. The only way to go I tells ya. Just at the point where working starts to drive me ookie I don’t have to do it for a while.

Plus, the way this job is organized I don’t have to pay taxes. That means something to me in this political climate. If things were to change I would want to pay my fair share but the way they are now we actually need to withhold our pay for it. Here we are, with the Downing Street memo, hard core proof that the reason for the Iraq invasion was fabricated. And we have our Congress doing nothing to stop it, even voting to increase funding for the war!

I am furious. So when I came across this guy’s site which suggests to everyone that the thing to do is find a job that pays little enough that you won’t need to pay taxes, and pare your lifestyle down to a point where that is not a problem, I immediately decided to post it here with a great big way to go stamp.

It’s what I did when you come right down to it. Though I had not been thinking of it in terms of taxation, just my own personal life, there is that aspect to it as well. And when I got rid of my car I found I could afford it. About ¾ of your average pay check goes to maintaining a motor vehicle if you have one. And if you pay income taxes you are supporting the Bush Administration. They have destroyed the meaning of our vote, so we have to weigh in using something else — money.