How you can resist funding the government → about the IRS and U.S. tax law/policy → how the government deals with tax resisters → penalties for failure to file

The House of Representatives recently passed a bill that would (among other things) increase the minimum failure-to-file penalty from $100 to $225.

Not long ago, the Obama administration released a set of tax proposals that it hopes Congress will enact. I didn’t pay a whole lot of attention, because I’ve been busy and because it’s Congress that will eventually be making these decisions, so these proposals from the executive branch don’t necessarily mean much for future tax law.

Still, one of the proposals jumped out at me as being of particular interest to some tax resisters, and I thought it was worth putting on your radar.

Currently, if you just plain do not file your 1040 at all, you can be hit with penalties and interest. You can also be charged with a misdemeanor, though this is rare. The Obama proposal would add a felony failure-to-file crime for people who fail to file in at least three of five consecutive years, where the amount of tax at issue is at least $50,000.

I skimmed a bit of the pitch for Obama’s new budget proposal to see if there was anything there we tax resisters ought to keep an eye out for. A few things caught my eye:

• Some years back, when “deadbeat dads” were the objects of the latest Hate Week, Congress set up something called the “National Directory of New Hires” so that if anyone who owed child support got a job, the government would be on them like flies on shit to make sure they made their payments. Obama would give the IRS access to this database “for general tax administration purposes, including data matching, verification of taxpayer claims during return processing, preparation of substitute returns for non-compliant taxpayers, and identification of levy sources.”
• Obama would also make “repeated willful failure to file a tax return” a felony, rather than a series of misdemeanors like it is today. “Repeated” would be defined as a failure to file returns for any three years within a five-year period, if the total tax liability during that period is at least $50,000.
• Obama would index all penalty amounts in the Internal Revenue Code to inflation, so that they would increase every year automatically rather than increases requiring Congressional action.

These are only proposals, of course, and Congress will have its own ideas, but they give you some idea of what sort of things are percolating through the mire in Washington.

Some bits and pieces from here and there…

• Italy’s “Northern League” says it plans to lauch a tax strike later this year, but it seems to me they’ve made similar threats in the past and nothing has come of it. Sure enough: Next Quotidiano gives us a run-down of every time the League has threatened a tax strike since 1992.
• If you decide to resist the federal income tax, you have to decide whether to file a tax return or not. One of the disadvantages of non-filing is that if the IRS notices, they’ll file a sort of dummy return for you: and usually one that considerably overstates the income tax you would have owed if you filed yourself. Tony Nitti at his Forbes blog, describes how this screwed over tax resister Thomas Salzer, who went to tax court to try to get them to accept a more accurate, less expensive, but tardily-filed tax return, but lost his case.
• American war tax resister Joseph Olejak, one of the few such resisters to have served time on criminal charges for his resistance, shares some of his thoughts about activism, resistance, and how he can continue to resist when being tax-compliant is a condition of his probation at The Nuclear Resister.
• The state secretary of one of India’s Communist Parties — CPI(M) — has called on residents of Kerala to refuse to pay new taxes announced by the state government.

Congress has engaged in its traditional year-end brinkmanship, passing a set of retroactive extensions of popular tax breaks. These also included some changes that may be of interest to tax resisters. For example:

• Tax penalties for failure to file and failure to pay will now be indexed for inflation, as of next year.
• Congress has created a new variety of tax-advantaged savings accounts, designed to help people fund accounts for disabled people. If I’m interpreting what I’ve read about this correctly, the tax advantages are modest: deposits to these trust funds are not deducted from taxable income, but any investment gains on the amounts in the funds, as well as the principle, are not taxable to the disabled person they are given to if they are withdrawn for the purposes of paying the qualified expenses of that person.

Meanwhile, the IRS has begun pronouncing doom and gloom as a result of the latest cuts to its budget.

• Quick to appeal to American’s bottom-line, IRS Commissioner John Koskinen said that this year people may experience delays in getting their income tax refunds. With any luck this will encourage more people to reduce their withholding so they aren’t owed refunds at tax filing time.
• The agency has instituted a hiring freeze (with unspecified “mission-critical exceptions”) and overtime is similarly banned.
• Koskinen says the cuts will hurt the IRS enforcement arm: “In some ways,” he said, “these budget cuts are really a tax cut for tax cheats. Because to the extent we have fewer people to audit and enforce the tax code, that means some people cutting corners on their taxes or not complying are going to get away with it.”
• Washington Post opinion writer Catherine Rampell amplifies this: Over the long run, IRS budget cuts make tax evasion look not only easier but also more justifiable. Our tax system functions mostly through voluntary compliance. But as taxpayers get more disgusted by their interactions with the IRS — and by reports of rich companies not paying their fair share of taxes… — ‘tax morale’ will wane and tax cheating will likely rise.”
• Koskinen himself says “the cutbacks in IRS enforcement resources and casework will mean that billions more in taxes owed to the nation will remain uncollected.”
• Mike Causey at Federal News Radio puts it bluntly: “If you’ve ever been tempted to fiddle with your federal income taxes, this may be the year to go for it. There has never been a better time.”
• There are already indications that big companies are increasingly willing to play “the audit lottery” — taking far-out tax positions in the hopes that the IRS won’t have the manpower to audit them, or even if they do, the consequences won’t be that bad.
• The IRS is toying with the idea of a short-term, agency-specific shutdown with unpaid leave for employees as a way of saving money.
• The agency can probably forget about attempts to modernize its antediluvian information technology infrastructure.