Don't Mess With Taxes

One of my favorite recent TV shows was The Americans, FX's series on embedded Russian spies during the 1980s Cold War.

For six seasons, we fans watched the couple known to their suburban Washington, D.C. neighbors as Phillip and Elizabeth Jennings raise their two U.S.-born children, run their small travel agency and spy, sometimes in deadly fashion, for their native U.S.S.R.

One of the underlying themes was how well and easily the Jennings assimilated into the America they were trying to bring down. It's a common trope, but one done well and with nuance by the television program.

A radio story I heard today made me think again of the show and how many things we do share with the nation that is, to most Americans' minds, still one of our biggest enemies.

One of those shared experiences is, of course, taxes. In this case, it's the difficulty that the national tax collector — the Internal Revenue Service in the United States and the Finance Ministry in Russia — to get the money its due from its citizens.

In this case, we're talking about self-employed workers here and there.

Russia's tax-evading entrepreneurs: Almost 41 million U.S. workers in 2017 were self-employed, according to the 7th Annual MBO Partners State of Independence report.

That's an almost 3 percent increase from 2016, according to the study by MBO Partners, a Herndon, Va.-based firm that provides back office support to independent workers. MBO says the self-employed now represent 31 percent of the private workforce, according to the study.

On the other side of the globe, it's a similar situation. An estimated 15 million Russian workers, or 20 percent of the population, are self-employed.

And those freelancing Russians, says Lucian Kim in his report from Moscow for NPR's Morning Edition from Moscow, don't pay any taxes.

Global tax collection issues: Unpaid taxes by small businesses, particularly sole proprietorships, also is a big problem for the IRS. It's long been a given by the IRS that Schedule C filers are major contributors to the tax gap, the amount of money that is due but goes uncollected. It stands now at around $458 billion.

The problem is that the IRS must rely to a large degree on the unverified reports by self-employed workers on how much money they made and how many deductions they can claim.

Aside from the stray 1099 form, there are few third-party documents to confirm what a small business owner puts on his or her tax return regarding how well or not a business is doing for tax purposes.

The United States and Russia are not alone. Tax evasion is a global problem.

Poor tax collection contributed to Greece's debt woes. That in turn jolted European (and U.S.) economies and escalated the global financial slowdown.

Innovative ways to collect taxes: There are as many ways to collect missing tax money as there are countries facing tax gaps.

Greece considered enlisting tourists and students to act as tax spies when they bought from gray market vendors. Note the word considered. It never made it into practice.

India undertook a demonetization effort to reduce large stashes of illicit cash has led to markedly more tax compliance. After some initial success, the effort didn't work as well as tax officials on the subcontinent had hoped.

Now, Russia's Finance Ministry has implanted a pilot project to broaden its tax base using a new smart phone app for the country's self-employed workers.

Technology tax assist: As Kim explains in his NPR report (you can listen via the embedded story below), the app verifies participating Russian entrepreneurs, connects them to customers seeking their services and essentially moves the businesses from the gray market into the mainstream economy and onto the country's tax rolls.

To encourage use of the app, entrepreneurs who participate in the program will pay a tax rate of 4 percent tax instead of Russia's regular 13 percent tax rate.

Some of the targeted self-employed are skeptical, fearing the lower tax rate is a bait-and-switch technique since there's no guarantee of how long it will last.

And, say many of the Russians who are skirting their country's tax laws, the real barriers to business legitimacy and tax paying is the government's endless bureaucracy and constantly changing rules.

Sound familiar U.S. taxpayers?

I suspect the IRS and state officials, too, will be watching what happens with the Kremlin's latest effort to collect unpaid taxes from reticent taxpayers.

All tax collectors are always looking for ways to modernize. Technological advancements that make it easier for them to get the tax money they're owed are at the top of the governments' upgrade lists.

And despite the United States' and Russia's many political and other (like idiomatic translation) differences, that tax collection goal is one that both countries share.

You also might find these items of interest:

• 4 tax tips for independent contractors
• Cross-border tax inspectors give tax cheats no place to hide
• The easiest way to cheat on your taxes? Run your own company

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