For many years, the IRS audit rate has been falling, and in 2019, the individual audit rate was down to just 0.45% of returns. In our “voluntary” income/payroll tax system, the easily predictable result has been fewer complaints about the IRS but greatly accelerated evasion.
However, as this article points out, many new people are going to come under IRS scrutiny because they cannot pay the income taxes that they owe for the 2020 tax year. LendEDU did a survey of 1,000 adult Americans and discovered:
- 17% of Americans laid off due to the coronavirus pandemic couldn’t pay all of their 2019 taxes on time;
- 19% of respondents borrowed money from a retirement account due to the pandemic recession. 34% of those who were laid off had to dip into their retirement savings;
- While the IRS is waiving the 10% penalty for early withdrawals of up to $100,000 from retirement accounts, the withdrawn amount is still taxable as income;
- Additionally, 18% of respondents sold stocks or liquidated other investments due to the pandemic recession. Among those who had lost their jobs, 30% had to sell stock or liquidate other assets. Again, this made people’s tax situation worse by creating taxable income;
- Federal unemployment benefits are taxable but the stimulus checks are not;
- Over 14 million Americans owed back taxes in 2018.
IRS COLLECTION PRACTICES
While many of the IRS’s worst collection practices have been sharply curtailed by Congress, the IRS is still responsible for collecting income taxes and payroll taxes that are owed but remain unpaid.
Much of the work of collecting back taxes has been delegated to private collection agencies. In those cases, the IRS gives taxpayers and their representatives written notice that the accounts are being transferred to the private collection agencies. The agencies will then send a second, separate letter to the taxpayer and their representative confirming this transfer.
Accounts Excluded from Collection with Private Collection Agencies
The IRS will not engage private collection agencies in cases involving taxpayers who are:
- Deceased
- Under the age of 18
- In designated combat zones
- Victims of tax-related identity theft
- Recipients of supplemental security income (SSI) or social security disability insurance (SSDI)
- Adjusted gross income does not exceed 200% of the applicable poverty level
- Currently under examination, litigation, criminal investigation or levy
- Subject to pending or active offers in compromise
- Subject to an installment agreement
- Subject to a right of appeal
- Classified as innocent spouse cases
- In presidentially-declared disaster areas and requesting relief from collection
In most cases, the IRS has ten years to collect the unpaid taxes—assuming that a return was filed. If they are unsuccessful after ten years, then the statute of limitations on collection runs out and the debt is no longer collectible.
While the IRS can no longer just take your bank account, automobile, business or garnish your wages without giving you written notice, they still have plenty of tools they can use during the ten year period that can make a delinquent taxpayer’s life quite uncomfortable. Upon giving you written notice, they can:
- File a tax lien against you
- Levy (seize) your bank account
- Garnish your wages
- Close down your business
- Seize and sell your home
- Damage employment and business relationships
- Assess you personally for corporate employment taxes
- Put you in a monthly installment payment arrangement that is too high
- Contact your banker, neighbors, friends, and business relationships concerning your tax liabilities
- Go after third parties to whom you may have transferred some of your assets
Of course, as set forth in IRS Publication 4681, any debt to the IRS that is no longer collectible after the ten years is treated as a debt forgiveness and is considered income to the taxpayer.
WHEN THE FAIRTAX IS ENACTED
When the FAIRtax is enacted, many things change for the better. This is especially true for the millions of Americans who now find themselves having to cope with back taxes they can’t pay on top of all the economic hardship caused by the pandemic. Under the FAIRtax:
- The IRS will be eliminated.
- Unemployment benefits will not be taxable. The FAIRtax will be collected only when new goods and retail services are purchased with those benefits.
- There will be no tax due when money is withdrawn from a retirement account. Again, these withdrawals will be taxed only when they are spent on the retail purchase of new goods and services.
- Money received from the sale of stock or other assets will be taxed only when it is spent on the purchase of new goods and retail services.
Other than those mentioned above, who could possibly want a family to incur taxes on money they had to withdraw from a retirement plan just to provide themselves with food and shelter?
The income/payroll tax system has many economic and personal flaws. They’ve always been there, but the recent COVID disaster has brought many them into much sharper focus. It outrageous that the tax system is adding to the struggles that the COVID disaster has inflicted on millions of our friends and neighbors.
CONCLUSION
As Magic Johnson, the great basketball player and man said, “When you face a crisis you know who your true friends are.”
Our country is having a crisis. Unfortunately, instead of trying to find a way to help us be stronger as a nation, many in the Ruling Class and their minions in Congress are exploiting the current situation to enrich themselves and their friends even further, and to gain even more control over our lives.
As long as we do what they say, they may throw us a few scraps while they grow even wealthier at our expense.
Just who are our true friends? Is it the Ruling Class and their minions in D.C. who seek to make us more dependent on them? No, our true friends are the people in our lives who seek to make us more independent and prosperous.
The FAIRtax will go a long way toward freeing the American people from the Ruling Class and their minions in D.C.
If you have friends who don’t know about the FAIRtax, send them to FAIRtax.org. Have them watch the white boards under “How It Works” and, if they agree, ask them to please join us.
Then contact your Members of Congress and the President and demand that Congress pass -the FAIRtax—the only fair tax.
Remember, if we don't continue to tell the truth and demand a change, then this quote from George Orwell's 1984 may foretell our children's future:
“If you want a picture of the future, imagine a boot stamping on a human face—forever.”
Is it hopeless? When confronted with a seemingly impossible problem, remember the statement attributed to the author George Bernard Shaw who wrote, You see things; and you say “Why?” But I dream things that never were; and I say “Why not?”
Isn’t it time for us to ask, “Why not?”