IRS Not Collecting, Employees Running Scared : LUSENET : TimeBomb 2000 (Y2000) : One Thread

This appeared in the Contra Costa Times (suburb of S.F.), Sunday 10/10/99 By David Cay Johnston, New York Times. Tax Collectors Leaving 'a ton of money on the table'

New rules keep the dwindling IRS staff so busy the some taxpayers are gambling their nonpayment will never be caught. Washington - Understaffed and caught in a set of mixed signals from Congress, the IRS for more than a year has let many tax deliquents go without paying tax bills that may total billions of dollars.

Those owing back taxes include wealthy individuals and employers that have withheld payroll taxes but not turned the money over to the federal government, according to IRS tax collectors who spoke on the condition of anonymity for fear of retaliation by supervisors. For nearly a year, collectors, whose numbers are dwindling, have been in training on complex new rules imposed by Congress instead of pursuing cases. In addition, teh IRS interprets the new rules as requiring an all-or-nothing stance on back taxes, Rather than reaching negotiated settlements and working out payment schedules, as was customary in the past, the IRS is demanding full payment. If the taxpayer is unable or unwilling to comply, teh agency is setting the cases aside as temporarily uncollectible. Then, calculating that the agency us inlikely to act before the 10 year statute of limitations runs out, many big tax delinquents areopting to take their chances and pay nothing. "I have clients who owe taxes in six figures and could pay 60 percent, 70 percent, and the IRS is collecting nothing," said Steve Kassel, a tax preparer in Daly City who specializes in tax collection cases. "The IRS is leaving a ton of money on the table." 'Don't Have The Resources' There is no updated official tally of the money going uncollected, but tax collectors say that it is in the billions of dollars. Charles Rossotti, the tax commissioner, confirmed in an interview that the number of collection cases languishing in IRS files is growing, particularly cases involving taxes withheld from paychecks and then turned over to the Treasury by small businesses. "Our case inventory is building up because we are not working as many cases," he said. Tax colsultants say some wealthy taxpayers are also shielding assets from the IRS by putting them into homes, fully aware that the government - which used to seize as many as 1,000 houses in a year for nonpayment of taxes - has not seized one in more than 14 months. Though some tax advisers say it remains risky to dodge tax debts, evcen some high-level IRS officials acknowledge the latest ploys may be successful. They blame antiquated computer systems, the shortage of collectors and complex new regulations that taxpayers can manipulate to delay collection. "We don't have the resources anymore to do hand to hand combat" with with recalcitrant taxpayers, said Harry Manaka, the IRS chief of collection practices. Since 1990, the number of tax returns filed has increased 13 percent, to 226 million this year, but Congress has cut the number of tax collectors 19 percent, to about 6,800. Meanwhile, restrictions imposed by Congress to protect people from overzealous IRS officials mean tax collectors handle far fewer cases. Some of the new rules were imposed after descriptions of armed raids, bullying tactics and other abuses of taxpayers by the IRS were given at Senate Finance Committee hearings in 1997 and 1998. All-or None Yields None While some of the testimony has since been discredited, Sen. Wm. Roth Jr.., R-Del., who was chairman of the hearings, said they nonetheless showed that the IRS was out of control and needed to change its way. Roth said the probelms in collections "are like growing pains" and that the new protections for taxpayers "were never intented to allow tax cheats to escape the consequences of their lawless behavior." Once the new policies are fully place, he added, if the IRS "for some unintended reason lacks the authority and resources necessary to pursue individuals who breaks the law, I can assure you we'll revisit the issue." Still, the new strictures on the agency have had a variety of unintended consequences - most notably teh de facto all or nothing policy on tax debts. In the past, teh agency would often collect what it could from a taxpayer, and then - as the period for collection was about to end - threaten action such as seizing a house to persuade the debtor to pay the balance or extend the collection period, somethimes for decades. Now, according to tax professionals, if a taxpayer does not agree topay in full, collectors are quick to designate teh debt "currently noncollectible," which, for the purposes of performance reviews, effectively closes the case. "Revenue officers are no longer judged by the dollars they collect, but by the efficiency with which they close cases," said Mike Wellman, a tax accountant in Longview, Texas, with numerous clients who he says could pay more than half of their back taxes but are paying nothing. Rossotti said he now lilmits extensions of the statute of limitations on collecting back taxes to an extra five years. And if the taxpayer will not grant an extension - or if regular payments would not cover 100 percent of the debt even with the extended pay period - the IRS is refusing to accept an installment agreement and suspending its collection efforts. If the statute of limitations expires without IRS action, the taxpayer successfully avoids paying the debt. The risk, explained Manaka, the IRS collection executive, is that the agency could revive the case within the allotted time - and seek penalties and interest. "Tax professionals who advise clients to do this are taking a risky approach," he said. Manaka acknowledged, however, that the chance of a case being revived is small, provided the taxpayer continues to file annual tax returns and there is no evidence of a sharp increase in income. Adjusted gross income would have to rise between 25 percent and 200 percent, dependng on the taxpayers income level, before IRS computers would flag the case for review, tax professionals and former tax collectors said. Kassel, the Daly City tax preparer, said that for taxpayers with a stream of income sufficient topay part of their back taxes, but no significant assets, there was no incentive to grant the IRS an extend collections period, let alone pay delinquent taxes.

-- Judy (, October 11, 1999


Please, oh please......oh puleeeeeeeeeeeeeeeezzzzeee....


-- Man From Uncle 1999 (, October 11, 1999.

One might add that they are totally over their collective heads in terms of fixing their systems and so have no chance to pursue past cases once TSHTF in a big way.

-- ..- (dit@dot.dash), October 11, 1999.

I dont think I am alone when I suggest that the IRS and its problems might be the least of our corporate concerns over the next few months.

-- D.B. (, October 11, 1999.

Same article in PD in Cleveland. Spouse hands me article and says NOW might be a good time to call them, explain that we can't help with the $#00 we "owe" them and "would they call back about Jan so we can discuss repayment terms".

We'll see what hapens tomorrow.....

NIght thain

-- jes a coinfused ol baseballer tryiun ta keep da ladies happy (, October 11, 1999.

Now wouldn't that be the silver lining to the Y2K cloud?

-- C (, October 11, 1999.

Only for those readers who have an interest in "tax liability" issues, a white paper on the above which you might find of use:

any comments welcome...

-- Steve Meyers (, October 11, 1999.

Personally, I can say that the IRS process hasn't skipped a beat where I am concerned. Without going into detail, none of what has been written about the IRS applies to me. The agent I am working with (Ms. alias no doubt) is very diligent in trying to get the 400 bucks she says I owe the federal government from 1994. All correspondence is computer generated; all processes are explained in detail by Ms. Jones, all deadlines for appeals, documents, etc. are locked in concrete, immovable, kind of like Y2K is.

As much as I'd love to see the IRS die a swift and painless death on 01/01/2000, my gut feeling tells me that there will be an army of Ms. Jonses armed with clipboards, solar calculators, and sharp pencils next year.

-- Uncle Bob (UNCLB0B@Y2KOK.ORG), October 11, 1999.

ah, and $3 mil worth of handguns, shotguns and concealable audio recorders.

-- (@ .), October 11, 1999.

Sort of an FYI:

I have called the IRS and asked questions. I have told them that I am not paying Federal Income Tax by following the CFR title 26 section 1.1445-1 and 1.1445-2 Link:

Code of Federal Regulations

That is the Law according to the IRS. I filed a copy of that and what it instructs with my employer and I followed the IRS instructions that came about 2 weeks later. I now do not have any Federal Income Tax witheld from my paycheck. From my reading of Title 26 USC section 1 Determination of Liability I see that I have no liability to pay Income Tax as defined. I am not a "taxpayer" as defined by Title 26; thus I have no need to file a 1040 or any other form.

This was all done more than 2 years ago. I have not heard from the IRS at all since then.

Thus, I do not pay federal Income Tax, Legally

-- Brent James Bushardt (, October 11, 1999.

I just HAVE to add my personal story of the #$% IRS:

My BF paid THOUSANDS to the IRS a couple of years ago (sold a house, etc.) A couple of months later, they sent him a letter saying the accountant had improperly determined the tax amount and that if the "extra" $150 wasn't paid in 15 days, they were going to put a lien on his house!!!! No warnings, no nothing!! The accountant said the IRS was wrong but he paid amyway - why gamble.

My favorite IRS story came out of Providence, when I was living in RI back in '88-89. A husband and wife were found by the IRS to be short on their taxes so the IRS confiscated all their assets, INCLUDING a $60(?) bank account owned by their 5-year-old daughter!!

Let's hope the IRS is NOT Y2K compliant.

-- dakota (, October 11, 1999.

Don't just hope that the IRS is not Y2K compliant. That might be just the excuse to generate bogus tax leins against everyone so the government can own everything.

Instead hope that the IRS has unsolvable, "organizationaly fatal" Y2K problems which cause it to dry up, shrivel to dust and blow away. And then hope that their support infrastructure suffers failure and collapse such that there is never any chance of the IRS ever being reborn in any shape or form which could grow into another version of what we see today.


-- Wildweasel (, October 11, 1999.

Much though I hate paying taxes (and we pay more in Canada), if the IRS/Revenue Canada go down, won't that be the death of the dollar? If it means staying a 5-7 or going to a 9+, I'd rather have the tax system stay up. (I can't believe I said that!...)

-- T the C (, October 11, 1999.

"Once the new policies are fully place, he added, if the IRS "for some unintended reason lacks the authority and resources necessary to pursue individuals who breaks the law, I can assure you we'll revisit the issue."

I'm sure they will...and this is just the kind of set up story to insure that they get all of their previous gestapo powers back.

-- Shelia (, October 11, 1999.

I have a story, but it's not first-hand, gained through friends in alternative economic scene. Story goes that about 10 years ago a group of engineers at Hughes or Rockwell were all filing "exempt",...for quite some time. IRS got on Hughes/Rockell,...demanding they force employees to change exemption status, or garnish wage/salary. Employer went to engineers who said...if you do we'll sue. Employer back to IRS..."they are going to sue,". IRS to employer: "Not our problem." End of story: Employer refused to force change or garnish if IRS would not help in filed lawsuit. Engineers remained exempt.

FWI,...employers garnishing $$ from paycheck because IRS sent employer letter of request to do so is NOT valid unless accompanied by a court order. Unfortunately the purveyors of fear/threat/and coercion have most employers buffaloed and permanently in the dark about this.... Land of the free, Lovelies. Read the code. Refuse to be abused.

-- Donna (, October 11, 1999.

This one you'll love. The title: Banks as agents of IRS

The ex-wife of my significant other had wrangled with the IRS for a number of years....shortly before IRS attempted to grab her bank account she closed her account. (nick of time, not sure how) After receiving "the letter" from the IRS, the bank wrote to her demanding she put her money BACK in the back so they could send it to the IRS. Uh,...sure. This one kept us laughing for months.

-- Donna (, October 11, 1999.

Donna: dollars to donuts the bank has *already* sent the money to the IRS, and wanted the former depositor to return it so they could be reimbursed.

The way it sometimes seems to work (so far as I've observed) is that the party attempting to garnishee the funds will go through a two- step process -- the first step consists of having the bank say "there's yay amount of money here", and the second step consists of them saying to the bank, OK, hand it over. Sometimes the balance changes between those two events. And, sometimes the bank doesn't double-check before paying.

-- Ron Schwarz (, October 11, 1999.

Thanks for clearing that up, Ron. I'll take honest crooks like Bonnie and Clyde over banks any day.

-- Donna (, October 11, 1999.

Brent, a lot of us here would PAY YOU to explain the "how to" to us! I went to your link and it says "self-employed" so that didn't make anything clear to me. I am dead serious about this request for clarification. You could make our day here!!!! :-)

-- Elaine Seavey (, October 12, 1999.

Moderation questions? read the FAQ