Tags: denis | kleinfeld | tax | Audit | Refunds

Unhappy Returns: Audit May Precede Some Refunds

By Denis Kleinfeld
Monday, 30 May 2011 12:00 AM Current | Bio | Archive

Like many of you, I watch the Sunday TV news shows. Typically, there is a panel of three news writers or syndicated columnists and the like and one moderator.

When the topic gets around to taxes, they display an amazing amount of ignorance, both of how the tax law works and what is going on in the tax world.

Typically, the left-wing liberal on the panel makes some comment such as, "We'll have to raise taxes." Then the right-wing conservative guy makes a comment in retort about the need to lower the deficit.

Nobody talks about all the gyrations the tax collectors are going through in dealing with an increasingly complex tax code and the burdens on the taxpayers who fall victim to this complexity. Neither do they talk about the difference between tax rates and tax revenues.

Let me give you an example of tax gyrations causing taxpayer problems. On May 26, 2011, the GAO (Government Accountability Office) issued a report on the need to do pre-refund checks and audits before issuing to taxpayers their tax refund.

The goal is to deter billions of dollars of refunds that are primarily made to taxpayers (or fraudsters) who claim refundable tax credits. The GAO points out that the newly created “Making Work Pay” credit is about 60 percent in favor of taxpayers who underclaimed their benefits. That leaves 40 percent in question.

The tax collectors, unfortunately, have to cope with a mountain of ever-accumulating deductions, exclusions and especially credits that cause a substantial amount of refunds. Take the credit for Making Work Pay, which is effectively a gift of money and a government-deficit increasing expenditure.

Why is the government shocked when it is so ripe for abuse?

How about the credits for solar panels or hybrid cars, which is a government subsidy to car buyers, and the ability of some congressional member or senator to claim they are bring home the pork to businesses that are part of this scheme. Do you really want to pay for somebody else buying a car?

Then there is an oldie but a goodie -- the mortgage-interest deduction. It's a giant subsidy from the government to encourage people to buy homes. And somehow, everyone, especially the news panels on TV, spouts the mantra that it is a real financial benefit.

The fact is that nobody with a lick of sense would spend a dollar to get a 20 percent or 35 percent deduction. A real investment would result in a dollar being expended and getting $2 in return.

The mortgage-interest deduction is just government causing people to engage in "wasteful borrowing and spending," as one commentator put it.

What the GAO is now saying is that all this complexity in the tax law is causing millions of math errors or an opportunity for fraud, which potentially is the cause for billions of dollars of wrongful refunds.

So, to now deal with this problem which, in fact, the Congress created in the first place, the GAO says that the tax authorities now have to do pre-refund checks before issuing the refund money.

Of course, this will require sending out more notices to millions of taxpayers and creating audits for others. Another burden on the hapless taxpayer.

All for the insanity of a tax system which is clearly an utter failure. An utter failure, that is, except as a useful tool for some of those in Congress to appease lobbying groups, reward campaign contributors, and curry favor with constituent voters. And you should realize that every deduction, exclusion, and credit just adds to the deficit.

I don’t think the professional cadre of television panelists will ever know anything about tax more than the average guy or girl on the street. They get paid anyway. Clearly, raising tax marginal rates will decrease tax revenue. The government's own statistics prove this.

What taxpayers now need to realize is that along with their refund, they are likely to get an audit.

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Kleinfeld
Like many of you, I watch the Sunday TV news shows.Typically, there is a panel of three news writers or syndicated columnists and the like and one moderator. When the topic gets around to taxes, they display an amazing amount of ignorance, both of how the tax law works...
denis,kleinfeld,tax,Audit,Refunds
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2011-00-30
 

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