Monthly Archives September 2021

FBR Extends Tax Filing Date Until October 15

The Federal Board of Revenue (FBR) extended the filing date for tax returns to October 15 on Thursday.

In a notification, the FBR said the September 30 deadline had been extended by 15 days due to “serious technical issues” in the Iris portal for electronic filing of tax returns.

The RBF had already stressed on several occasions that the deadline would not be extended. He had, however, ordered his chief commissioners of the Inland Revenue to “generously grant extensions” for the filing of tax returns to people facing “difficulties of any kind”.

“The system operates transparently and approximately 150,000 returns were filed on September 28, the highest number ever filed in a single day. In the meantime, FBR, like last year, has improved the ability of its system to provide transparent services to taxpayers. the tax collection agency said on Wednesday.

However, many social media users complained on Thursday that the Iris portal was not working.

The RBF had received around 1.4 million tax returns by September 28.

KTBA requests 90 day extension

The Karachi Tax Bar Association (KTBA) previously asked Prime Minister Imran Khan for a three-month extension, that is, until December 31.

The KTBA pointed out that compliance with the 90-day time limit was prescribed by law for filing the income tax return under Article 118 of the Income Tax Ordinance 2001. It further pointed out that ‘unavailability of the FBR portal for 15 days. “The 90-day period should only start when a flawless and error-free return of income in accordance with the provisions of the ordinance is uploaded to the Iris portal, which in itself has not yet been notified,” said the ‘association.

The KTBA further stated that the FBR portal, both e-FBR and Iris “remained hacked and disabled from August 14, 2021” and was intermittently not functioning properly until the end of August 2021, which again denied taxpayers 90 uninterrupted days prescribed by law to file the tax return.

On Tuesday, the RBF issued a circular to make it easier for taxpayers to file their tax returns over the past two days with extended hours for filing returns as well as paying taxes. This was in addition to the massive nationwide awareness campaign involving national heroes, urging people to file their returns to improve tax compliance in the country.

This year, the FBR notified tax returns from July 2021 to meet the 90-day (three-month) requirement under tax law.


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Sri Mulyani declares tax harmonization bill for a fair tax system

TEMPO.CO, JakartaFinance Minister Sri Mulyani Indrawati and the House of Representatives’ Finance Committee (DPR) ratified the Tax Harmonization Bill at the first level meeting on Wednesday, September 29. general provisions on taxation (RUU KUP).

“The government believes this bill will help create a fairer and more legal tax system,” Sri Sri said in an official statement on Thursday (September 30th).

According to Sri, several regulations have been agreed in this bill, ranging from the imposition of taxes on crops, provisions on the follow-up of mutual agreement procedure (MAP) decisions, to provisions for administrative sanctions in the process of settlement. objection and appeal. .

The previous bill had been included in the National Priority Legislation Program 2021 (Prolegnas). However, it had not been approved at the plenary meeting held by the DPR today.

The second level meeting or plenary meeting is scheduled in the coming days on the agenda for the ratification of the bill. “It will be next week,” she added.

Sri further reiterated that the bill should strengthen government-led tax administration reform, including the use of Identification Numbers (NIK) as Tax Identification Numbers (NPWP) for individual taxpayers. .

The bill was also supposed to support Indonesia’s position in international cooperation and produce provisions on the final rate of value added tax, as well as optimize the country’s income through base broadening. tax, Sri Mulyani said.

Read: Sri Mulyani talks about alternative minimum tax plan

FAJAR PEBRIANTO


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Peers in Cumbria pressure government over ‘utterly absurd’ municipal tax system

CUMBRIAN peers continued to press the government to correct a ‘grossly unfair’ municipal tax system that sees some London mansions charged less than the average county house.

Former Cumbrian MP Dale Campbell-Savors is leading a campaign to reform the housing tax and has launched a debate in the House of Lords on the issue.

Lord Campbell-Savors has previously called the house tax system unfair, saying: “It is unfair, it penalizes part of the North and favors London, and it is now in urgent need of reform.”

Speaking during the Lords’ council tax debate, he said: “How can a C-Band house in Cumbria, with municipal taxes of over £ 1,600 a year, pay more than a £ 54million H-Band luxury home in Mayfair in London? Surely such discrepancies in the treatment of homes in the north only serve to further reveal how far the whole house tax system has become completely absurd. Isn’t the concept of a red wall defending the north more than a myth, confirmed by the government’s refusal to reform housing tax and its enormous inconsistencies? ”

Lord Clark of Windermere also spoke on the matter.

He said: “My lords, all over Cumbria, whether in Barrow, Carlisle, Kendal or in the many households in the middle villages, households feel aggrieved to be forced, because of the national framework, to pay more. housing tax than luxury homes in London.

“Even the government has to accept that this is grossly unfair.

“When do they plan to take a small step to alleviate the problem and help level up in Britain?”

The government whip, Viscount Younger de Leckie, replied: “Housing tax is well understood by taxpayers.

“The government has no plans to reform the housing tax, which would be complex and time-consuming to undertake and would create confusion for taxpayers.”


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Honesdale can impose a 1% earned income tax on wages

If enacted, the borough would impose a 1% earned income tax on the salaries of residents and non-residents working in the borough.

HONESDALE, Pa .– The proposed labor income tax ordinance would allow Honesdale to collect 1% from everyone who lives in town and many who work there.

In return, the borough would lower its property tax rate.

“We started out by wanting to make things a bit fairer for them, where they might not have as much or no income earned so that we could give them property tax relief, but without hurting the tax base. but also really watching public safety were watching our storm water systems looking for ways to fund them without sending property taxes through the roof, ”said Jared Newbon, a councilor for Honesdale Borough.

District officials say the EIT ordinance will cut property taxes by 11%.

Still, some taxpayers who showed up to Wednesday night’s board meeting were skeptical.

“Honesdale is a federally declared HUBZone and was already a struggling area and adding this tax is an undue burden that people will not be able to face considering the fact that food costs more. , gas costs more if going to cost more to heat your home, ”said Brian Wilken, president of the Greater Honesdale Partnership.

“Our companies are trying to survive, it is hard enough to retain employees and even less to have to tell them because they work in the district were going to take even more money from them,” said Suzie Frisch, member of the community.

If enacted, the borough would impose a 1% earned income tax on the salaries of residents and non-residents working in the borough.

Two things are important to note.

The earned income tax will not affect education property taxes, and the earned income tax only refers to the taxation of money people earn. It doesn’t affect things like social security and insurance.

“A person who earns $ 25,000 is going to pay $ 250 in tax and the person who earns $ 250,000 in investment income will not pay a dime … This is extremely unfair and I strongly advise against it,” said Tom Shepstone, a resident.

The borough points out that of the more than 2,500 municipalities in Pennsylvania, only 93 of them do not have a tax on labor income.


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Former Democratic senator ‘warns’ Biden’s tax system

Former Democratic Senator Heidi Heitkamp, ​​one of the party’s key tax policy voices, has proposed that President Joe Biden tax assets valued at the time of his death on farms and family businesses. Said to damage the.

“I’m trying to sound an economic and political warning to Democrats that this is not the way to go,” she said in an interview with Squawk Box. “The turmoil this brings to small families and the wealth of farmers and families is not worth it. “

Biden proposed to tax assets valued at the time of death for income over $ 1 million. He also proposed raising the capital gains tax to the standard income tax rate. The plan will be discussed within the framework of a parliamentary regulation bill. In his proposal, individuals who inherit millions of private companies of value and real estate could face an immediate capital gains tax of more than 40% without having to sell them.

Now, in what is known as the “base increase”, an individual can inherit a valued asset without paying taxes, and the value is “upgraded” at the current valuation, to the benefit of individuals. interests of the tax deceased. Wipe off. For Biden and many progressive Democrats, the escalation is a huge loophole for the wealthy, with millionaires and millionaires giving their businesses and assets to their families for generations without paying capital gains taxes. They say it will be possible to pass.

Heitkamp, ​​who served in the Senate until 2019, chairs a new nonprofit called Save America’s Family Enterprises (SAFE). The nonprofit is campaigning against the proposal and running family ads. Neither the high camp nor the group revealed the donor.

“Unearned income should not be taxed at a much lower tax rate than income,” said Heitkamp, ​​supporting raising the capital gains tax to a tax rate normal. She also basically prefers to eliminate step-ups. Therefore, the asset does not reach the new valuation when inherited, but retains its original basis when sold.

She said her opposition to Biden’s plan was immediate imposition after death. She explained that families should only pay capital gains taxes when their assets are sold and the profits are made.

“What I find most annoying is that, for the first time, I am suddenly taxing unrealized capital gains,” she said. “My position has always been that you have to make capital gains. “

She gave the example of a truck driver named Sam, whose family has owned a cabin on a lake in Minnesota for generations and whose value has skyrocketed over time due to gentrification. The wealthy buyer next door buys land for $ 2 million and builds a mansion for $ 2 million. If both died, the wealthy landowner would give his property over to his family and could not pay taxes as they had a high current base. But Sam’s family could pay millions in taxes upon his death, even if the family didn’t sell the property.

She said the same applies to family businesses and farms.

“Family assets are more than a balance sheet,” she said. “Family assets are where we work, where we live and where we recreate ourselves. Given the taxation of unrealized capital gains, what you are doing is Pandora’s long-standing unclosed To open the box. “

The White House has said family farms and family businesses are exempt from taxes until the property is sold. Families also have up to 15 years to pay taxes to ease the pressure on them to sell immediately. According to a White House analysis, couples can be exempted up to $ 2.5 million if real estate is included, so only the richest 0.3% of taxpayers have to pay taxes.

Howard Grecman, a senior fellow of the Urban Brookings Tax Policy Center at the Urban Institute, said Biden’s plan to tax assessed assets on death is important to the overall plan to raise capital gains to income rates normal. I said it was a game. Instead of taxing assets assessed at the time of death, he said, wealthy families only hold assets indefinitely to avoid higher taxes on capital gains.

“Biden’s proposal to raise the capital gains tax rate to the normal tax rate would have an unpleasant economic effect, with little income and somehow unrealized at the time of death,” he said. declared. “If you take it up a notch, you won’t be taxed until your heir sells it. It’s decades after the death of the original investor. Lockdown has been around for generations. Investment can get stuck in underperforming assets. ”


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Pendleton adopts proposed public safety income tax hike | New

PENDLETON – With Police Chief Marc Farrer on the importance of additional funding for public safety, Pendleton City Council has passed a resolution to increase income tax for public safety.

City council voted unanimously on Tuesday to increase the public safety income tax for Madison County by 0.3%.

With the action taken in Pendleton, the 30-day deadline for passing the tax increase began with 50 votes required by the Madison County Tax Board.

Farrer said the town of Pendleton had suffered more arrests than the city of Alexandria in the past year.

“We cannot meet the needs,” he said. “We are going to start losing officers to Hancock County because they are offering a higher salary.”

Farrer said he was “super excited” at the possibility of additional funding for public safety in the community.

“It will benefit all of Madison County,” he said.

George Gasparovic, the Pendleton City Court judge, asked what the impact of the tax increase would be on the citizens of Madison County.

Madison County Sheriff Scott Mellinger said county and local community budgets continued to be squeezed over the past 15 to 20 years.

“We will either continue the public security services or cut other services,” he said.

City Councilor Bob Jones asked about the possibility of the state of Indiana providing more funds to hire assistant prosecutors and public defenders in Madison County.

Andrew Hanna, deputy chief prosecutor, said 91 other prosecutors’ offices would seek additional public funding. He doubted the county would receive additional state aid.

Council Chairman Chet Babb said the town of Pendleton had been doing well in recent years.

Babb said he had supported the hiring of more police officers at Pendleton for several years, but funding was not available.

“I don’t see how we can’t get past this,” he said. “This is a plus for the County and Town of Pendleton.”

Hanna said the proposed tax increase is of paramount importance to every community.

“The $ 8 million will be spent by all municipalities based on population,” he said.

Hanna said the county’s criminal justice system has been underfunded for decades.

He said Pendleton will receive around $ 237,000 starting in 2022 if the 0.3% tax increase is approved.

Hanna said Madison County’s tax burden will still be lower than 26 other counties in Indiana.

“It’s not a big jump,” he said. “The taxes raised will be dollars spent on public safety. The cumulative effect will be a safer Madison County.

Mellinger said the crime rate is a county-wide problem.

“It’s a quality of life issue for every citizen of this county,” he said.

Criminal justice handled the high crime rate as well as possible, Mellinger said.

“To maintain this high level, he needs a bullet in the arm,” he said. “The tax has not been increased for 25 years. The county took money out of the general public safety fund. The well has dried up.

To follow Ken de la Bastide on Twitter @KendelaBastide, or call 765-640-4863.


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Pendleton adopts proposed public safety income tax hike | Local News

PENDLETON – With Police Chief Marc Farrer on the importance of additional funding for public safety, Pendleton City Council has passed a resolution to increase income tax for public safety.

City council voted unanimously on Tuesday to increase the public safety income tax for Madison County by 0.3%.

With the action taken in Pendleton, the 30-day deadline for passing the tax increase began with 50 votes required by the Madison County Tax Board.

Farrer said the town of Pendleton had suffered more arrests than the city of Alexandria in the past year.

“We cannot meet the needs,” he said. “We are going to start losing officers to Hancock County because they are offering a higher salary.”

Farrer said he was “super excited” at the possibility of additional funding for public safety in the community.

“It will benefit all of Madison County,” he said.

George Gasparovic, the Pendleton City Court judge, asked what the impact of the tax increase would be on the citizens of Madison County.

Madison County Sheriff Scott Mellinger said county and local community budgets continued to be squeezed over the past 15 to 20 years.

“We will either continue the public security services or cut other services,” he said.

City Councilor Bob Jones asked about the possibility of the state of Indiana providing more funds to hire assistant prosecutors and public defenders in Madison County.

Andrew Hanna, deputy chief prosecutor, said 91 other prosecutors’ offices would seek additional public funding. He doubted the county would receive additional state aid.

Council Chairman Chet Babb said the town of Pendleton had been doing well in recent years.

Babb said he had supported the hiring of more police officers at Pendleton for several years, but funding was not available.

“I don’t see how we can’t get past this,” he said. “This is a plus for the County and Town of Pendleton.”

Hanna said the proposed tax increase is of paramount importance to every community.

“The $ 8 million will be spent by all municipalities based on population,” he said.

Hanna said the county’s criminal justice system has been underfunded for decades.

He said Pendleton will receive around $ 237,000 starting in 2022 if the 0.3% tax increase is approved.

Hanna said Madison County’s tax burden will still be lower than 26 other counties in Indiana.

“It’s not a big jump,” he said. “The taxes raised will be dollars spent on public safety. The cumulative effect will be a safer Madison County.

Mellinger said the crime rate is a county-wide problem.

“It’s a quality of life issue for every citizen of this county,” he said.

Criminal justice handled the high crime rate as well as possible, Mellinger said.

“To maintain this high level, he needs a bullet in the arm,” he said. “The tax has not been increased for 25 years. The county took money out of the general public safety fund. The well has dried up. “

Follow Ken de la Bastide on Twitter @KendelaBastide, or call 765-640-4863.


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Personal income tax and social insurance obligations for foreigners making an internal transfer within a company

The representative office of a foreign trader in Vietnam (hereinafter referred to as “Representative office”) Is a dependent unit of this foreign trader established under Vietnamese laws. Upon entering the Vietnamese market, foreign traders can choose many different forms to participate. However, the establishment of a representative office is an optimal test step to reduce costs, avoid risks associated with local procedures such as non-application of value added tax, income tax, corporate tax, no financial statement, no independent audit required…. in the early stages of accession. With the function of strengthening and helping foreign traders find customers, promote purchase and sale contracts with local partners, research and develop products, foreign traders usually appoint the employee who has worked for foreign traders for a long time and understood their products to go to Vietnam, take the post of head of representative office and operate representative office business or work as representative office employee in Vietnam. These foreign employees are considered foreigners in internal change within a company.

Social insurance obligations for Foreigner undergoing internal change within a company

Social insurance is a policy of the social security system primarily concerned with the government to provide benefits to employees based on contributions from employees and employers. The essence of social insurance is a guarantee to compensate or partially replace the income of employees when they experience a decrease or loss of income due to illness, maternity, work accident. , occupational disease, unemployment, when they reach the end of working age or die on the basis of contributions to the social insurance fund organized by the government. However, each employee will be subject to different social insurance policies. According to the provisions of clause 1, article 2 of government decree 143/2018 / ND-CP on subjects participating in compulsory social insurance: “Foreign employees working in Vietnam are required to participate in compulsory social insurance. ‘they have work permits, certificates of practice, permits to practice issued in Vietnam, employment contracts of indefinite duration or employment contracts valid for at least one year with employers in Vietnam. In the event of an intra-company move of the foreign employee, the foreign employees sign the employment contract with the foreign traders and are not required to apply for a work permit as provided for in clause 3, article 7 of decree 152/2020 / ND -CP: “Intra-company moving in 11 sectors of the Vietnam-WTO services commitments schedule, including business services, communication services, construction services, distribution services, services education, environmental services, financial services, health services, tourism services, recreational and cultural services, and transportation services.

Consequently, foreigners transferring internally within a company are not subject to compulsory social insurance.

The subjects affiliated to health insurance are employees working under a fixed-term employment contract for a total duration of 3 months or more, employment contracts of indefinite duration. The monthly health insurance payment is equal to 4.5% of the salary serving as the basis for the amount of compulsory social insurance (monthly salary) with the employer contribution of 3% and the employee contribution of 1.5%. Thus, subjects affiliated with health insurance do not discriminate against Vietnamese citizens or foreign employees. In addition, in accordance with Clause 2, Article 1 of the Social Insurance Law 2008 as amended and supplemented in 2014 (hereinafter referred to as “Health Insurance Law 2004”), foreign organizations and natural persons in Vietnam are also subject to the provisions of the Health Insurance Law 2004. Therefore, we believe that the foreigner transferred within a company if he works under an employment contract of indefinite duration or of an employment contract of a duration of 3 months or more is also subject to the Health Insurance Act 2004 and must participate in health insurance under the laws.

However, according to official letter No. 288 / BHXH-QLT dated February 18, 2020, from Ho Chi Minh City Social Insurance Agency, Ho Chi Minh City Social Insurance Agency instructs employers in Ho Chi Minh City than the foreigner transferred internally to a Companies are not subject to health insurance from February 1, 2020. Sharing the same opinion with the Social Insurance Agency of Ho Chi Minh- City, in the online policy explanation on the government portal, the Social Insurance Agency of Vietnam also said that the internal overseas transfer within a company is not eligible to participate in health insurance because foreign workers in Vietnam are not specifically regulated to participate in health insurance under Article 12 of the Health Insurance Law of 2004 and Decree 146/2018 of October 17, 2018 government on detailing and guiding the implementation of cert thus articles of the law on health insurance which do not specifically regulate the mechanism applicable to its group of subjects. However, the Official Dispatch is not a normative legal document and is only an internal administrative document or applicable to regions and localities. Therefore, in our opinion, to avoid risks in determining social insurance obligations for foreign employees making an intra-company move, the representative office should send a written consultation to the social insurance body where it is located. find the office to consult, exchange views in advance to comply with regulations.

Tax obligations of natural persons foreign employees moving within the company

Unlike other matters, foreigners living and working in Vietnam must declare and pay personal income tax. However, it is necessary to determine the residence status of the foreigner (resident or non-resident) to determine the rate of personal income tax payable for foreigners.

Foreigners who make an internal transfer within a company are identified as residing in Vietnam. The representative office must declare a personal income tax similar to that of Vietnamese employees.

For foreign workers who do not reside in Vietnam, it is true that the employee (usually the head of the representative office) is a foreigner making an intra-company move but has not been present in Vietnam for 183 days or more. and does not have a usual address in Vietnam, they are therefore considered a non-resident natural person in accordance with clauses 2 and 3, article 2 of decree 65/2013 / ND-CP. We can consider the tax obligations of natural persons from abroad in internal transfer within a company in the following two cases:

  • Case 1: The foreigner who makes an internal transfer within a company does not reside in Vietnam but generates income in Vietnam. The representative office must declare personal income tax on wages / salaries incurred in Vietnam.
  • Case 2: The foreigner who makes an internal transfer within a company does not reside in Vietnam, does not generate any income in Vietnam and is not entitled to a salary / wages for work performed in Vietnam. Consequently, foreigners are not subject to personal income tax. However, in accordance with the provisions of Clause 2, Clause 3, Article 7 of Decree 126/2020 / ND-CP, the Representative Office must always declare the income tax of foreign workers on a quarterly basis, whether or not they generate income. taxable income from October 1, 2020. On the other hand, Official Letter n ° 2393 / TCT-DNNCN dated July 1, 2021, from the Directorate General of Taxes relating to the personal income tax declaration, in the event that organizations and individuals pay taxable income, they will be subject to personal income tax. declaration. Therefore, if organizations and individuals do not generate and pay taxable income on personal income, they are not subject to the provisions of the Personal Income Tax Act. Therefore, organizations and individuals who do not pay personal income taxable income during a month / quarter are not required to report personal income tax for that month / quarter.

For this case, in our opinion, the official letter 2393 is only used as a reference. According to the official letter 2393, the representative office can explain to avoid administrative penalties for non-declaration of income tax of foreign employees from July 1, 2020 until now. Then, the representative office must declare the income tax of foreign employees, whether or not they have taxable income in accordance with Decree 126/2020 / ND-CP.

In addition, for the declaration of no income in Vietnam, we have come across many cases in our consulting practice where the Representative Office has declared no income. However, the tax authorities still applied personal tax rates for income paid by foreign traders. Therefore, in our opinion, you should consult the tax administration to declare and pay the income tax of foreign workers with no income in Vietnam before doing so to avoid the risk of tax penalties.

The issues of personal income tax and social insurance obligations for foreign employees in Vietnam are complicated in terms of laws and practices, especially in the case of foreign employees making an intra-company move. It becomes even more difficult to determine their obligations as they frequently change their residence address between their country and Vietnam. Therefore, representative offices of foreign traders in particular and employers in general should carefully review, understand legal regulations, and regularly consult with experts to determine income tax and social insurance obligations in order to to avoid violations during implementation.


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SC issues notice to government on new property tax system | Vijayawada News

Vijayawada: The High Court on Tuesday issued notices to the government in the filed petition challenging the state’s new property tax system. The taxpayers’ association has asked the High Court to challenge the new property tax regime in which tax is levied on the capital value of the property instead of annual rental income. The government recently released GO 198 to introduce the new property tax and vacant land tax regime in urban local communities.
Lawyer Sunkara Rajendra Prasad, arguing on behalf of the petitioners, told the judiciary headed by Chief Justice Arup Kumar Goswami and Judge Ninala Jayasurya that the amended Municipalities Act of Andhra Pradesh violated constitutional principles and democratic. He also supported the process of rolling out the new tax system without giving people the opportunity to submit their grievances.
While objections were called amid the Covid-19 pandemic, many people were reluctant to travel to municipalities to submit their grievances, he said, adding that although representations were made to provide of alternative platforms such as the online submission of objections, officials did not consider the requests.
Government litigator for municipal administration, G Shivaji, argued that the state government brought the amendment in line with the recommendations of the Union government, which proposed to have a uniform tax policy. across the country and has published guidelines on this. The state government only followed the recommendations, he said. Given all of the arguments, the High Court asked the state government to file cross-affidavits in the petition and released the case for a new hearing after eight weeks.
Lawyer Sunkara Rajendra Prasad, arguing on behalf of the petitioners, supported the process of rolling out the new tax regime without giving people the opportunity to submit their grievances.


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Does America’s Tax System Willfully Favor the Rich?






MGN

Who’s cheating on Uncle Sam the most these days? Earlier this year, two IRS researchers joined economists from Carnegie Mellon, the London School of Economics and the University of California at Berkeley to explore this question.

According to these analysts, Americans at the top and bottom of the income scale do not report all of their income. But the level of non-reporting varies enormously. Among Americans belonging to the poorest 50% in the country, only 7% of income goes unreported. In the top 1%, it’s almost 20%.

What is happening here? Or is it just deeply but unintentionally flawed?

This is a complicated question. But as a tax lawyer, I firmly believe that the flaws are intentional. Let’s take a look at the evidence.

Most of us don’t have the ability to exclude income from our tax returns. Our employers report all of our wages and salaries on W-2 forms. Our financial institutions declare interest on our savings and dividends on our 1099 shares.

But the type of income that many comes up with at the top of our income scale – business income from partnerships and other special categories of business enterprises – usually doesn’t appear on any form that needs to be filed with the IRS. .

In other words, we have a tax system with a built-in loophole in reporting information. This certainly counts as a major flaw.

An intentional fault? Maybe, but it’s debatable. So let’s take a look at the recent dramatic drop in IRS audit rates on the nation’s wealthiest.

Audits on revenues over $ 1 million have fallen by 71% since 2010, says the Center on Budget and Policy Priorities. This drop reflects fairly substantial cuts to the IRS budget – a 19% hit since 2010 – and what could be more intentional than budget cuts?

Some might argue that the drop in auditing on high-income earners may simply reflect the inevitable complexity of their returns, which can include all kinds of business entities and trusts.

But if you keep digging, there is still compelling evidence that our tax system is rigged: Tax Code Section 6707A. Nothing in our tax code is more like rig by design.

Section 6707A of the tax code imposes a penalty for failing to disclose a “listed transaction,” essentially any transaction that the IRS identifies as an abusive measure to avoid taxes.

The sanction for violation of article 6707A? An amount equal to 75% of the tax that a taxpayer sought to avoid through the transaction, even if the transaction itself is considered legitimate. Failure to disclose also gives the IRS unlimited time to verify reports of listed transactions, not just the regular three years.

Sounds like a squeeze for shady declarers, doesn’t it? Those who engage in listed transactions may disclose their abusive transactions in their tax return, a decision that will almost certainly trigger an audit. Or they can omit disclosure and risk a huge penalty.

But there is a catch. Section 6707A carries a maximum penalty. No person who fails to disclose a listed transaction can be fined more than $ 100,000.

Think about it for a moment. For a person who engages in a listed transaction to avoid multi-million dollar income tax, the penalty limit in Section 6707A essentially imposes no deterrent to tax evasion.

If you’re trying to avoid $ 50,000 in tax, the threat of a penalty of $ 37,500 on top of the tax owed will be intimidating. But if you’re trying to avoid $ 3,000,000 in taxes, that threat of a $ 100,000 penalty is insignificant. Without the possibility of a severe penalty, even the indefinite audit risk becomes much less threatening.

The bottom line: Section 6707A undoubtedly rigs our tax system in favor of the ultra-rich. What good policy could be served by intentionally limiting the exposure to penalties of very wealthy taxpayers and no one else? I can’t think of one.

Could the intentional rigging of the tax code in favor of the rich be limited to this one obscure sanction provision? Do you want to buy a bridge?

Bob Lord is a tax lawyer and associate researcher at the Institute for Policy Studies.



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