Don't Mess With Taxes

I get alerts every day from search engines, the U.S. Department of Justice, and emails from my unpaid tax researcher, also known as the hubby, on tax crimes.

Many of the tales of tax offenders end up in the weekly Tax Felon Friday feature.

Today, however, I'm focusing on official efforts to facilitate such felonious tax actions.

Taking from the IRS: The U.S. House this week approved financial aid for Israel. The GOP bill to provide Israel $14.3 billion calls for that amount to be offset by taking funds, once again, from the Internal Revenue Service.

The vote is latest Republican attempt to claw back some (all?) of the $80 billion, 10-year appropriation to the IRS for customer service, enforcement, and operational improvements.

That historic funding package was dinged in June by the White House-Congressional debt ceiling deal that included IRS budget cuts of up to $21.4 billion over the next three years.

IRS take-back, take two: This week's Israel aid package is the latest GOP move to pick apart the IRS funds.

The measure was approved by a largely party-line vote (12 Democrats were among the bill's supporters in the 226-196 vote), but faces problems in the nominally Democratic Senate.

Senate Budget Committee Chair Sheldon Whitehouse (D-Rhode Island) blasted such GOP anti-IRS actions in a statement aimed at a Senate-specific measure introduced last month.

"Republicans' priority always seems to be protecting big, tax-dodging donors. They try to jam these cuts into any bill they can," said Whitehouse.

If the House bill does somehow make it through the upper chamber, President Joe Biden has said he would veto the measure.

But the effort by new House Speaker Mike Johnson (R-Louisiana) and his Senate counterparts highlight their party's continuing and continual commitment to undermining the IRS, particularly when it comes to tax compliance efforts.

Closing the Tax Gap: The U.S. Treasury has long faced a Tax Gap. That's the amount of tax Uncle Sam is legally owed, but which his tax collection agency has been unable to recover.

The current Tax Gap estimate is $688 billion.

Much of that missing money comes from wealthy taxpayers who underreport their incomes. Crypto assets also are big Tax Gap contributors.

But the IRS faces a huge hurdle in finding these hidden funds. It currently doesn't have the personnel or other resources to go after these tax scofflaws who use elaborate schemes to hide their taxable income.

New hires to target high earners: IRS Commissioner Danny Werfel has announced that part of the Inflation Reduction Act money would be used to hire 3,700 employees nationwide dedicated to tax compliance. The agency specifically is looking for potential employees who are technical experts when it comes to examining complicated tax returns.

These new IRS staff will be assigned the most complex income tax returns. The IRS says this round of hiring is part of its larger effort to make tax enforcement more equitable, and expand compliance in areas of concern such as high-income earners, partnerships, large corporations, and promoters.

The GOP plan to cut the money to pay for such tax examinations essentially would aid those looking to avoid paying the tax they owe, mostly the high earners that Werfel and his crew say already are often noncompliant.

Real dollar costs of IRS cuts: It also would increase the federal deficit, an area that ostensibly is also a prime Republican Party concern.

The Congressional Budget Office's scoring of the GOP Israel aid/IRS cuts bill found that reducing the tax agency's funding would actually increase the deficit by enabling more tax evasion.

So while there are no official tax crime charges, the GOP's latest effort to gut IRS enforcement efforts gets the ol' blog's attention on this Tax Felon Friday.

Nobel prize winning economist Paul Krugman explains why in his latest New York Times column, Israel, the I.R.S. and the Big Grift:

And making it easier to cheat on taxes by defunding the tax police probably has spillover effects that go beyond the direct adverse effect on enforcement. The more we become a society that rewards people who evade their fiscal obligations, the more likely it is that people who don’t cheat on their taxes will feel like chumps and losers. If Americans start to believe, as Leona Helmsley put it, that "only the little people pay taxes," the damage to our society will surely be moral as well as fiscal.

Tax Felon Friday: Tax cheating ranges from the simple attempts, such as just not including earnings that aren't enough to trigger third-party reporting, to elaborate schemes employed by the wealthy to shelter their money from Uncle Sam's reach.

The letter of the law requires that all tax evasion be treated — investigated — the same.

When that happens and ends in criminal or civil charges and/or final judicial resolutions, those cases are Tax Felon Friday fodder. And sometimes, like this week, so are efforts, official or not, to undercut IRS efforts to better fulfill its tax compliance job.

You can catch up on previous tax crime posts, including those that were published long before I gave them a special designation, in the, what else, tax crimes category. You'll find this post at the top of that collection right now, so just scroll down for more.

You also might find these items of interest:

• $10,000+ cash transaction reporting changes coming in 2024
• A global wealth tax on billionaires would bring in $250B a year, says EU tax group
• New report predicts $4.7 trillion in global tax avoidance and evasion losses over next decade

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