Thursday, January 15, 2009

Can I have the number for Geithner's accountant?

In 2003, faded Twin Peaks star Sherilyn Fenn filed for bankruptcy, admitting owing $101,532 in unpaid state and federal taxes.The Internal Revenue Service alone is now going after her for over $170,000. Just a few years ago, the IRS went after Robert J. Gordon, a Toledo, Ohio, electrician, for nearly $900,000 because he failed to pay about $193,000 in quarterly employee taxes back in the 1980s. And the IRS hit the United Way with a lien for $12,000 -- for a clerical error committed by tax collectors. But Timothy Geithner, Barack Obama's pick for Treasury Secretary ... He gets to make good on his unpaid taxes plus a little interest -- with no penalties.

It's not that the rather draconian penalties the IRS can impose are a secret. The tax agency publicizes them far and wide:

If you do not file your return and pay your tax by the due date, you may have to pay a penalty. You may also have to pay a penalty if you substantially understate your tax, understate a reportable transaction, file an erroneous claim for refund or credit, file a frivolous tax submission, or fail to supply your SSN or individual taxpayer identification number. If you provide fraudulent information on your return, you may have to pay a civil fraud penalty.

Filing late. If you do not file your return by the due date (including extensions), you may have to pay a failure-to-file penalty. The penalty is usually 5% for each month or part of a month that a return is late, but not more than 25%. The penalty is based on the tax not paid by the due date (without regard to extensions).

Paying tax late. You will have to pay a failure-to-pay penalty of ½ of 1% (.50%) of your unpaid taxes for each month, or part of a month, after the due date that the tax is not paid. This penalty does not apply during the automatic 6-month extension of time to file period if you paid at least 90% of your actual tax liability on or before the due date of your return and pay the balance when you file the return.

The monthly rate of the failure-to-pay penalty is half the usual rate (.25% instead of .50%) if an installment agreement is in effect for that month. You must have filed your return by the due date (including extensions) to qualify for this reduced penalty. If a notice of intent to levy is issued, the rate will increase to 1% at the start of the first month beginning at least 10 days after the day that the notice is issued. If a notice and demand for immediate payment is issued, the rate will increase to 1% at the start of the first month beginning after the day that the notice and demand is issued. This penalty cannot be more than 25% of your unpaid tax. You will not have to pay the penalty if you can show that you had a good reason for not paying your tax on time.

Geithner's unpaid taxes have been characterized as "honest mistakes" and that may be right. Some experts say the relatively unusual employee-without-withholding status that Geithner held when he worked for the International Monetary Fund trips up all too many people. Then again, he's supposed to be an economic expert who is in line to take over the department that administers the IRS. Not everybody is convinced of Geithner's innocence. Tom Ochsenschlager, vice president of tax for the American Institute of Certified Public Accountants, said, "It's such a basic mistake that I kind of wonder if we know all the facts."

But let's give Geithner the benefit of the doubt. Lots of people make innocent mistakes when they're wading through the unknowable morass that is the Internal Revenue Code. Many accountants, lawyers and fly-by-night tax negotiators make their living saving people from the consequences of their own misunderstandings when it comes to filing taxes. Even the IRS's own employees disagree over how to apply the tax code -- and the tax agency's advice is just flat-out wrong over one-third of the time, according to the Treasury Department.

But the IRS doesn't care that you have as much trouble as its own employees when you try to fathom the tax laws. It still imposes penalties, files liens, seizes property and throws people in prison. Unless, of course, they're politically prominent individuals who have been named by the new president to run the IRS.

The Los Angeles Times sees a potential silver lining here. The paper's editorial board says that, in return for us granting him the benefit of the doubt that tax collectors so rarely grant to common people, "we'd like Geithner to do us all a favor in return: lead the fight for a radically simpler tax code that is easier to enforce and harder to evade."

I'm not entirely on board with that, though I agree with simplifying the code. In fact, I think the LA Times misses the point. I'm less concerned about enforcing the code than about figuring the damned thing out, so that evading the wrath of tax collectors can involve more in terms of rational planning and less in terms of high-powered political connections.

As for whether the government should be picking our pockets quite so vigorously as it does ... I'll leave that for another time.



Blogger Kent McManigal said...

How can anyone owe anything to a thief? Boggles the mind....

January 15, 2009 7:21 PM  

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