Felipe Castro holds a sign advertising a tax preparation office for people that still need help completing their taxes before the Internal Revenue Service deadline in Miami. Joe Raedle/Getty Images
By Steven Sloan - Jan 6, 2012 3:14 PM CT
The Internal Revenue Service estimates [ http://www.irs.gov/pub/newsroom/overview_tax_gap_2006.pdf ] that U.S. companies and individuals failed to pay $385 billion in taxes they owed in 2006, an increase from $290 billion five years earlier.
The agency said the rate of compliance remained almost unchanged at 85.5 percent, down slightly from 86.3 percent in 2001. The IRS announcement today is the first update to the so- called tax gap estimate in five years. The gap grew because the income base expanded between 2001 and 2006, the agency said.
The U.S. recorded a $248.2 billion budget deficit in 2006, according to the White House Office of Management and Budget. If the IRS had collected all of the taxes owed that year, the U.S. could have had a surplus of as much as $136.8 billion.
“This report shows that closing the tax gap needs to be a major focus of tax reform,” Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said in a statement. “In an era when we’re squeezing the federal budget for every dollar of savings, we have to make every effort to recover these lost funds.”
The estimate is a comprehensive measure of the taxes the U.S. is owed and includes income taxes, the estate tax, employment and excise taxes.
Better Estimates
The IRS uses computer models to estimate the amount owed by individuals and businesses that don’t pay their taxes or don’t pay their full tax bill. The agency said it is getting better at estimating the tax gap in part because of better data on small corporations.
The biggest chunk of money that goes uncollected -- $235 billion -- comes from individuals, the IRS said. Of that, $122 billion is estimated to be taxes owed on business income that would be reported on an individual return.
The IRS estimated that $67 billion in corporate income tax wasn’t collected in 2006. Most of that -- $48 billion -- was from large corporations with more than $10 million in assets, the agency said.
The IRS said compliance is highest in sectors where information reporting or withholding are required. Business groups have successfully fought these types of regulations.
Rule Repeal
Congress repealed a rule in November that required governments to withhold 3 percent of payments to contractors. Lawmakers also scrapped a provision of the 2010 health-care law that sought to curb underreporting of income by compelling businesses to report more transactions to the IRS.
Meanwhile, the IRS is delaying a law that mandates overseas banks to withhold from some U.S. customers and a separate law requiring companies that process and settle credit-card transactions to report payment amounts to the U.S.
Lawmakers and regulators should be cautious in rolling back other reporting or withholding requirements, said Elizabeth Dold, a principal at Groom Law Group Chartered in Washington who led the IRS’s information-reporting advisory committee last year.
“Reporting and withholding are two very critical tools to close the tax gap,” she said. “They should be used carefully.”
To contact the reporter on this story: Steven Sloan in Washington at ssloan7@bloomberg.net To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net
Millionaires, the IRS has been auditing more of you
If you have a lot of these to fan around, you may be more likely to undergo an IRS audit, a new report indicates. (Atta Kenare / AFP / Getty Images)
By Tiffany Hsu January 6, 2012, 10:08 a.m.
Millionaires beware: The IRS is becoming more interested in you. If you’re pulling in less than $200,000, there’s not much to worry about.
The Internal Revenue Service said this week in an enforcement report [ http://www.irs.gov/pub/newsroom/fy_2011_enforcement_results_table.pdf ] that it audited 12.5% of wealthy taxpayers in fiscal 2011, up from 8% in 2010 and 6% in 2009. About 4% of those earning $200,000 and up were audited, up from 3% the year before.
But for the last five years, the agency has mostly left returns showing less than $200,000 in income alone, with around 1% facing audits.
Same goes for companies. Businesses with $250 million in assets have a 27.6% audit rate compared to 1% of firms with less than $10 million in assets.
Of 141 million individual returns filed last year – more than three-quarters submitted electronically -- there were 1.56 million audits total, according to the IRS. Of those, only about a quarter result in in-person visits from tax officials.
The IRS’s enforcement process led to taxpayers paying out an additional $55.2 billion last year. The agency also seized 776 pieces of property and used property liens 1 million times.
U.S. IRS Audited Record Millionaires in Fiscal ’11
1040A tax form booklets are stacked at the U.S. Postal Service. Photographer: Jin Lee/Bloomberg
By Steven Sloan - Jan 5, 2012 2:28 PM CT
The U.S. Internal Revenue Service said it audited 12.48 percent of individual tax returns with income exceeding $1 million during fiscal 2011, a high reached at a time of debate over the taxation of top earners.
The announcement marks the third consecutive year that the IRS increased its audit rate on returns showing income of more than $1 million. According to IRS data, the previous record was the 8.36 percent of returns in that category audited during fiscal 2010.
“We’ve always tried to make sure there was equity in the system,” Steven Miller, deputy IRS commissioner for services and enforcement, said in a telephone interview today.
Miller said the higher rate of audits on top earners can be attributed to a greater focus on income held outside the U.S.
“We have done a lot of work in the offshore area,” Miller said.
The IRS released the data as protesters have occupied parks in dozens of U.S. cities over the past several months to highlight perceived income inequality. Democrats and Republicans in Congress have repeatedly clashed during the past year over the Democrats’ proposal to impose a surtax on annual income over $1 million.
The audit rate also climbed for corporations with more than $250 million in assets. The IRS said it audited 27.6 percent of these businesses, up from 25.3 percent in fiscal 2010.
$55.2 Billion
The IRS said it collected $55.2 billion from overall enforcement activities during fiscal 2011. That is down almost 4.2 percent from the $57.6 billion the agency collected from audits the previous year.
The audit rate for individuals in all income brackets remained constant at 1.11 percent in 2011 while the rate for small corporations -- those with assets less than $10 million -- rose to 1.02 percent from 0.94 percent in 2010.
Miller said the IRS will conduct audits this year with about 3,000 fewer enforcement personnel than in 2010. He said the reduced workforce wouldn’t diminish the agency’s tax collection efforts.
“We’ll be fine,” Miller said. “What we’re going to try to do is make sure we’re going to invest where we need to invest.”
To contact the reporter on this story: Steven Sloan in Washington at ssloan7@bloomberg.net To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net
IRS contacts 1 in 8 millionaires seeking extra taxes, just 1 in 100 earning under $200K yearly
By Associated Press, Published: January 5, 2012
WASHINGTON — One in eight people earning at least $1 million annually was audited by the Internal Revenue Service last year, making them far likelier to be examined than those making below $200,000, according to IRS data released Thursday.
Just 1 in 100 individuals earning less than $200,000 had their income tax returns examined, the IRS said.
The 12 percent of millionaire earners audited in 2011 was appreciably higher than the 8 percent who were audited in 2010. IRS officials said the high ratio was part of an effort to demonstrate that tax laws are applied fairly.
“That has been something we’ve concentrated on to assure that there’s equity in the system, to assure that those at the lower end of the spectrum know that those at the higher end of the spectrum are subject to the same rules and enforcement as everyone else,” Steven Miller, deputy IRS commissioner for services and enforcement, said in an interview.
In recent weeks, President Barack Obama and congressional Democrats have sought to boost taxes on the wealthy as a way to pay for jobs programs, a theme they are expected to continue in this presidential and congressional election year. IRS spokeswoman Michelle Eldridge said the growing portion of millionaire earners’ returns audited is not related to politics.
“The IRS is an agency of civil servants, and we base our audit decisions on tax issues — nothing else. We don’t play politics here,” she said.
Between 2004 and 2009, the percentage of millionaire earners audited ranged between 5 percent and 7 percent.
The data was divided into only three categories of income: below $200,000, $200,000 and up, and $1 million and higher.
About 1 in 25 people earning $200,000 and more was audited in 2011.
The IRS also audited a greater proportion of large corporations than smaller ones, the data shows.
Last year, 1 percent of corporations with assets under $10 million were audited. Among corporations with assets of $250 million and up, 28 percent were audited.
The IRS said its enforcement efforts to collect all taxes owed — which include audits, court cases and other activities — netted $55 billion last year. That is nearly $3 billion less than the previous year, which Miller attributed to a falloff in estate taxes and corporations writing off their losses.
All together, the IRS audited nearly 1.6 million of the 141 million individual income tax returns that were filed. In 2010 — the most recent year available — more than 8 in 10 individuals audited ended up paying additional taxes.
The agency collected a total of $2.3 trillion in revenue last year from individuals and businesses, including the $55 billion from its enforcement efforts.
The IRS figures also showed that:
— In 2011, the agency garnisheed wages or seized money from bank accounts 3.7 million times, put liens on property 1 million times and seized 776 pieces of property.
— 77 percent of individual returns were filed electronically last year, up from 69 percent in 2010.
— 70 percent of callers to IRS taxpayer information telephone lines got through, slightly less than the 74 percent who reached someone in 2010. Miller attributed that to budget cuts to the agency.
— The information IRS officials dispensed over the phone to taxpayers was accurate 93 percent of the time, the same as the previous year.
— The IRS website, www.irs.gov, was visited 319 million times in 2011, a slight increase.
The data was presented by federal fiscal years, which begin on the previous Oct. 1.
Obama Recess Appointments: Justice Department Says They Are Constitutional
(AP Photo/Haraz N. Ghanbari)
PETE YOST - AP 01/12/12 01:15 PM ET
WASHINGTON — The Justice Department is defending the legality of President Barack Obama's recent recess appointment of a national consumer watchdog and other officials from criticism by Republicans.
The department released a 23-page legal opinion Thursday summarizing the advice it gave the White House before the Jan. 4 appointments. Assistant Attorney General Virginia Seitz wrote that the president has authority to make such appointments during a congressional recess of the current length. Seitz argued the Senate's periodic pro forma sessions in which no business is conducted have not enabled the chamber to advise and consent to regular nominations, as it is empowered to do under the Constitution.
Senate Republican Leader Mitch McConnell has said Obama has endangered the nation's systems of checks and balances, and Republican Sen. Orrin Hatch says the appointments are a very grave decision by an autocratic White House.
Senate Republicans have been using their ability to block or stall Senate confirmation of some regular nominees as a way to curb agencies they believe have taken or are poised to take actions they disagree with.
On Jan. 4, Obama appointed Richard Cordray, a former attorney general of Ohio, to be the first director of the Consumer Financial Protection Bureau. Obama also appointed three members to the National Labor Relations Board that day. There was stiff Republican opposition to creating the new consumer agency, which was authorized in the financial regulation law, and Republicans have argued that the labor board has tilted toward unions under Obama's Democratic administration.
Seitz heads the department's Office of Legal Counsel, which is empowered to provide binding legal opinions to the executive branch.
Her new memo cites a Justice Department legal opinion from President George W. Bush's Republican administration in justifying Obama's recent appointments. The Bush administration opinion from 2004 says that a recess during a session of the Senate can meet constitutional requirements for permitting the president to make recess appointments as long as the recess is of sufficient length. The current recess is for 20 days. Seitz noted that the last five presidents have made recess appointments during recesses of 14 days or less.
In December, the Senate agreed to adjourn until Jan. 23 but to convene pro forma sessions in which no business was to be conducted every Tuesday and Friday. He made the disputed appointments on Jan. 4.
The Senate pro forma sessions in which no business was conducted, do not "in our opinion" interrupt the recess "in a manner that would preclude the president" from acting, Seitz wrote in her Jan. 6 opinion.
Beginning in late 2007, the Senate has frequently conducted pro forma sessions that typically last only a few seconds and that "apparently require the presence of only one senator," Seitz wrote. Under a legal framework dating back nearly a century, recess appointments have been permitted when the Senate cannot receive communications from the president or participate as a body in confirming nominees.
In an op-ed article in the Washington Post, Edwin Meese, who served as attorney general under Republican President Ronald Reagan, and Todd Gaziano, a former Office of Legal Counsel attorney who is now a fellow at the conservative Heritage Foundation, called Obama's actions "a breathtaking violation of the separation of powers."
The GOP's unsuccessful opposition to creating the consumer watchdog agency has turned into opposition to potential nominees to lead the office. Stiff Republican opposition headed Obama off from even nominating Elizabeth Warren, the interim official who helped set up the office, to be its permanent chief.
There is GOP resistance as well to filling slots on the National Labor Relations Board that Republicans feel has become pro-labor under Obama. If Republicans keep enough slots vacant on the labor board, they can prevent it from acting at all.
Friday, Jan 6, 2012 12:00 PM AUS Eastern Daylight Time
After a handful of recess appointments, fears of a "January surprise" surface in conservative circles
By Andrew Leonard [bold is mine]
President Barack Obama (Credit: Kevin Lamarque / Reuters)
Topics:U.S. Economy
President Obama’s bold decision to ignore GOP obstructionism and make recess appointments at the Consumer Financial Protection Bureau and the National Labor Relations Board started off 2012 with a bang, inspiring long-deferred jubilation among liberals and paroxysms of outrage from conservatives. There’s an enormous irony here: After three ridiculous years in which conservatives unfairly and absurdly attacked Obama for impersonating a socialist tyrant, the president is suddenly acting like an actual leader — and now the right is really freaking out.
Here’s the nightmare scenario: What if Obama runs totally wild and uses his executive powers to fix the economy? He might, gasp, win reelection!
Citing speculation from Jaret Seiberg, an analyst at Guggenheim Securities, Pethokoukis paints a picture in which Obama recess appoints a replacement for the current acting director of the Federal Housing Finance Agency (FHFA), Bush appointee Edward DeMarco. DeMarco’s job is to oversee the giant mortgage finance agencies Fannie Mae and Freddie Mac. DeMarco has long made it clear that he believes his primary job is to improve the financial bottom line of Freddie and Fannie, rather than employ the huge power the two government-sponsored enterprises (GSEs) exert over the residential mortgage market to make it easier for homeowners to refinance their mortgages and escape the threat of foreclosure. With DeMarco out of the way, so the theory goes, the Obama administration would have a free hand to push through a much more aggressive plan to help struggling homeowners.
Seiberg:
That could lead to a mass refinancing program for agency-backed mortgages that would go well beyond the existing HARP program. That could hurt agency [mortgage-backed security] pricing and result in higher financing costs going forward. Yet it also could be a big boost for the economy and housing going into the election.
Pethokoukis:
…[S]ome $3.7 trillion of mortgages would be refinanced. That’s right, this would be the Mother of All Mortgage Refinancing Plans. It would help roughly 30 million borrowers save $75 billion to $80 billion a year. As Mayer puts it: “This plan would function like a long-lasting tax cut for these 25 or 30 million American families.” … Talk about a political and economic game changer in this presidential election year. Obama could offer a trillion-dollar stimulus — as measured over a decade — that would directly and immediately impact tens of millions of Americans suffering from the housing depression. Cash in their pockets. Imagine the electoral impact on key states, such as Florida, suffering from both high unemployment and devastated housing markets.
If only. As a Federal Reserve white paper .. http://www.federalreserve.gov/publications/other-reports/files/housing-white-paper-20120104.pdf .. analyzing problems in the housing sector and reviewing potential solutions noted on Wednesday, 12 million U.S. homeowners are currently underwater on their mortgages. The steady flood of newly foreclosed properties hitting the market — expected to be a million per year in both 2012 and 2013 — exerts a relentless downward pressure on home prices. There are few things the Obama administration could do that would have a bigger positive effect on the overall economy than a really large-scale program of homeowner relief.
“Nonetheless, some actions that cause greater losses to be sustained by the GSEs in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery.
Protecting Fannie and Freddie’s balance sheet at the expense of the nation’s is penny-wise and pound-foolish, in other words. Why go to all the trouble and expense of bailing out the GSEs if not to use them to good effect?
However, that still doesn’t quite connect the dots between the appointment of Richard Cordray to run the CFPB and a possible recess appointment that would replace Edward DeMarco. First of all, the Obama administration’s efforts to reboot housing have been, at best, halfhearted, .. http://www.washingtonpost.com/business/economy/obamas-efforts-to-aid-homeowners-boost-housing-market-fall-far-short-of-goals/2011/09/22/gIQAoJdeAM_story.html .. and their failure more properly should be blamed on the White House than a single agency administrator. (And late Thursday afternoon, Bloomberg News reported .. http://www.bloomberg.com/news/2012-01-05/white-house-said-to-have-no-new-plan-for-refinancings.html .. that the White House was denying it had any new refinancing plan in the works.) Secondly, the legal basis for shoving out DeMarco and replacing him with a recess appointment seems especially iffy. Cordray is considered an independent regulator — so, theoretically, he can’t simply be fired at will by the White House, (although his “acting” status does inject some fuzziness into the equation). According to reporting by Ezra Klein and Brad Plumer, .. http://www.washingtonpost.com/blogs/ezra-klein/post/the-most-powerful-man-in-housing-policy/2011/08/25/gIQAouktrJ_blog.html .. Treasury Secretary Timothy Geithner explored the possibility of firing DeMarco, but ultimately found it unfeasible. Republicans are already threatening to sue the administration for the current batch of recess appointments; axing the existing director for the FHFA in pursuit of an election-year housing reform agenda could easily precipitate a constitutional crisis.
But then again, Republicans would only have themselves to blame for the chaos that would ensue if Obama did take the unlikely step of all-out war. In 2010, the Obama administration proposed North Carolina banking commissioner Joseph Smith as its nominee for FHFA director. But as with so many of Obama’s economic-policy-related nominations, Smith’s appointment by the Senate Finance Committee’s ranking Republican, Richard Shelby, was scuttled on the grounds that Smith was unlikely to resist Obama’s housing reform agenda.
So there is after all a direct connection between the Cordray recess appointment and the FHFA. Senate Republicans have routinely blocked Obama’s executive branch appointments, not because they have any particular problem with the quality of the people being proposed for the jobs, but because they want to block Obama’s reform agenda. It’s a travesty of government — and a made-to-order campaign platform. Want to know why the economy sucks? Because Republicans won’t let Obama appoint the people necessary to take direct action — whether that be at the Federal Reserve, or the FHFA, or anywhere else.
Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.More Andrew Leonard
News 
Market Data 
Discover 
