There is nothing so dangerous as a bureaucrat who thinks he has a mandate. After all, the “voters have spoken!” So it is now Open Season on productive Americans. Get ready now for a more militant IRS who will ravage America’s small and medium size businesses like locusts.
There’s no surprise that politicians favor higher taxes by any means possible. What’s eye opening to many (but not to our readers), is that the ‘opposition’ party, is publicly back-peddling from their small-government, low-tax stance.
Some have commented that we’re getting set up for an 11th hour shellacking: more taxes for all.
for these ‘Revenue’ Shakedowns…
The Alternative Minimum Tax (AMT): Congress enacted the AMT in 1969. It applied to only twenty-one wealthy taxpayers in the entire nation who took so many deductions they paid virtually no tax. But the AMT is not indexed to inflation, so it now acts as an automatic tax increase on millions of Americans.
Unearned Income Medicare Contribution Tax: This is a new Obamacare tax taking effect in January. It is an additional 3.8% levy on interest, dividends, capital gains, and passive business income received by taxpayers with incomes over $200,000 ($250,000 for couples). By adding this surcharge, the capital gains top rate blows up from 15% currently, to 23.8%. Top rates on dividends, gross income from interest, annuities, royalties, net rents, and passive income in partnerships and Subchapter-S corporations nearly triple from 15%, to 43.4%! The dirty secret: it isn’t adjusted to inflation, and like the AMT above, this tax is destined to attack the savings and investments of millions of Americans in the years to come.
Estate Tax: Over the summer, the Senate passed bill S.3412, which alters death tax rates and calculations, changing them from 35% on estates over $5.1 million, to a draconian 55% levied against estates over $1 million. Small businesses, family farms, mom and pop real estate investors, and families who work hard to afford a modest vacation home will be penalized.
Tweaking deductions and thresholds against the Middle Class: A number of accounting schemes will affect the middle class. For instance, raising the Medical Itemized Deduction threshold from 7.5% to 10% of AGI makes it harder for families to claim. Another example is caps on tax favorable vehicles, such as the Flexible Spending Account. Currently, it’s unlimited, but the new cap is set at a low $2,500 level. This hurts millions of families who pay out-of-pocket medical and dental expenses.
IRS Agents Ready to Enforce Government Revenue Collections…
Even if you feel these taxes won’t hit you, the IRS is not your friend. In tax filing year 2011, 1,564,690 individual tax returns were audited. Comparing 2000 and 2011 IRS numbers, individual tax return audits more than doubled.
What’s worse, the more you earn, the higher your chances for an audit. Someone who earns over $200,000 a year has four times the chance of an audit than someone earning less than $200,000. A few other IRS stats from their Fiscal Year 2011 Enforcement and Services Results report:
Collections, including levies, liens, and seizures: In 2001, there were 1,100,480; In 2011 that number rose to 4,791,890 – nearly five times more.
Criminal Investigations Initiated: 2001 – 3,284; 2011- 4,720. A 44% increase.
Average Prison Sentence: 2001 – 18 months; 2011 – 25 months. 39% longer.
Overall Conviction Rate: 2011 92.7%!
Once the IRS Tags You, They Won’t Leave
You Alone, Unless You Know Your Rights…
Aggressive tax collectors, acting on behalf of and with the full backing of the United States government, harass citizens sometime to the point of suicide.
Many citizens simply feel powerless to fight back. They assume there’s nothing they can do to stop the IRS from ruining their lives.
However, buried on page 94 of the 2011 Form 1040 instruction booklet is the “Disclosure, Privacy Act, and Paperwork Reduction Act Notice,” which states:
“The IRS Restructuring and Reform Act of 1998, the Privacy Act of 1974, and Paperwork Reduction Act of 1980 require that when we ask you for information we must first tell you our legal right to ask for the information, why we are asking for it, and how it will be used. We must also tell you what could happen if we do not receive it and whether your response is voluntary, required to obtain a benefit, or mandatory under the law.”
If any IRS agent requests information from you, you have a right to demand that the agent specify each of the following:
Whether your response is voluntary or legally required.
Which section(s) of the Internal Revenue Code authorize the IRS to make the request.
Why the IRS wants the information.
How the information will be used.
The consequences of not providing the requested information.
If the agent cannot, or refuses to, provide a full answer to every one of these inquiries, then any attempt on the agent’s part to extract information from you is illegal. The agent counts on the fact that most people will comply simply because they think they have to. You’ll know better.
You can also protect yourself from possible criminal prosecution by running your finances through a lawyer or accountant; and get their analysis in writing. If your advisors okay what you’re doing, you can demonstrate you were acting in a good-faith belief your actions were legal.
Just because the IRS sends you a “bill” does not mean you have to accept it! If you disagree, challenge it. Independent Living
guest editor and tax expert, Dan Pilla
, says the IRS routinely sends bogus bills using the “corrected return” snare. Collection statistics reveal it collects millions in taxes, most of which are probably not owed. You can decide to pay, if it is a manageable amount, to avoid immediate trouble, and later file a claim for a refund.
You can stop an IRS audit dead in its tracks. The IRS Handbook for Special Agents states, “An individual taxpayer may refuse to exhibit his/her books and records for examination… under the Fifth Amendment.”
If an IRS agent tries to pressure you into giving up information, ask: “Am I legally required to provide the government with information that it can use against me in a criminal case?”
Keep restating the question until you get a “yes” or a “no.” If he answers “no,” then you’ve just gotten him to acknowledge that you don’t have to answer his questions. If he answers “yes,” then he’s either lying or negligently ignorant; you should immediately ask to speak to a supervisor. If possible, record your question and his response.
Here’s the thing: If you want to claim deductions, the burden of proof is on you. If the IRS wants to prove unreported income, the burden of proof is on the IRS.
So, while claiming the Fifth Amendment with regard to questions about deductions will rarely produce a beneficial outcome, refusing to talk about or hand over records pertaining to your sources of income can help protect you.
With all the new changes to our abominable tax system, you ought to tie down your financial affairs to steer clear of trouble. Dan Pilla’s IRS Problem Solver Series
is a great resource that shows you how to intelligently and confidently stand up to the IRS.