Government Employees Owe Billions in Delinquent Taxes

As the IRS is getting more aggressive in their collection efforts – tax liens and levies are increased, even while the number of taxpayers who owe is going down – reports of government employees with tax debts keep rolling out. Some estimates put the total owed by federal employees at a whopping $3 billion. So, before we start raising taxes or cutting programs, maybe we should ask our government to lead by example?

From CNBC.com:

Need a quick three billion dollars, Uncle Sam? How about looking in your own pockets?

Deficit cutters struggling to make ends meet in Washington are eyeballing an unusual pot of potential revenue: back taxes owed to the government by federal employees themselves.

According to an IRS study last year, those employees and federal retirees owed a staggering $3.3 billion dollars in delinquent tax payments to the government.

The federal agency with the largest back-tax bill? The US Postal Service, where hundreds of thousands of employees owed a total of more than $283 million, said the report.

Also high on the list is the Department of Veterans Affairs, where employees had more than $156 million in back taxes.

The biggest group, though, is retired military personnel. That group owed more than $1.5 billion dollars.

Questions for the Tax Lady: November 1st, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question: Tax-Related Question: Can I claim my daughter who is 34 and has had no income for 3 years, I have been supporting her and not claimed her before. I was wondering if I could use her for a tax deduction .

Answer: You might be surprised how many people are asking this question these days. With the economy still stalled out and new jobs tough to find, more families are turning toward multi-generational living. Of course, there are tax consequences for every life choice, and helping to support financially your adult daughter is certainly no exception.

Let’s get down to brass tacks. Of course, like all tax questions, before you make a move you are not sure about, you need to speak with a tax professional who is familiar with your specific situation. That being said, you should be able to claim a dependent exemption for your adult daughter under the “Qualifying Relative” rules.

The requirements are:

• The person you are claiming as a dependent cannot be your qualifying child or the qualifying child of any other taxpayer. (Since your daughter is over the age of 24, she is not your qualifying child for tax purposes. Instead she is a qualifying relative see the IRS Publication 501 http://www.irs.gov/publications/p501/ar02.html#en_US_publink1000220868 for more information.)
• The person either (a) must be related to you, or (b) must live with you all year as a member of your household² (and your relationship must not violate local law).
• The person's gross income for the year must be less than $3,650.
• You must provide more than half of the person's total support for the year.

From the information you provided, looks like you will be able to claim a dependent exemption for your daughter, valued at $3,650 of exempted income for 2010. This means you may also be able to claim deductions for certain expenses incurred in supporting her. Check with a tax professional to see what you may claim.

Question: Isn't paying taxes voluntary?. I haven't files a tax return since 2004. I've done research on the Internet on how many cases the IRS has lost because that cant prove in writing or any law that says the government can tax someones labor. Nor can the IRS prove in writing the law that says one MUST file a tax return. I'm thinking of filing a law suit against them and use the precedent regarding the FEDX pilot and others I've seen on the Internet. Can you help me. The IRS levied my bank account on 10/27 and my kids are hungry.

Answer: I’m glad you asked this question.

Every so often I run into someone who is under the misconception that they do not have to pay taxes. Here’s the bottom line: we all have to pay taxes.

But let me clear up some essential facts:

The word "voluntary," as used in IRS publications, refers to our system of allowing taxpayers to determine the correct amount of tax and complete the appropriate returns, rather than have the government determine tax for them. According to the IRS:

The requirement to pay taxes is not voluntary and is clearly set forth in section 1 of the Internal Revenue Code, which imposes a tax on the taxable income of individuals, estates, and trusts as determined by the tables set forth in that section. (Section 11 imposes a tax on the taxable income of corporations.)

Furthermore, the obligation to pay tax is described in section 6151, which requires taxpayers to submit payment with their tax returns. Failure to pay taxes could subject the noncomplying individual to criminal penalties, including fines and imprisonment, as well as civil penalties.

As to fighting in court, regardless of what information you are finding on the internet, let me tell you that IRS Criminal prosecutions boast a conviction rate over 80%. For a prime example of how tax protesters fare in court, look at Irwin Schiff. Mr. Schiff is currently serving 13 years in prison on a number of tax charges resulting from his protesting the legality of income taxes.

While there is nothing stopping you from filing a lawsuit against the government, assuming you can afford to hire an attorney, or even find an attorney willing to take your case, please think again. Honestly, it is highly unlikely that you would win. People with far more resources have tried and failed repeatedly.

Your best course of action is to work with the IRS to find a workable resolution to your tax debts. To file a tax return every year, pay what you owe, and get compliant as soon as possible. As you have stated, the IRS has already levied your bank account, and they have the power to do more, like garnish your wages, or seize your personal property. You write that your “kids are hungry”, so it appears your family is already suffering. I would advise you not to gamble with their well being by pursuing this further..

For more information on tax protester arguments and the legality of income tax, please review the IRS’s positions on each one found here: http://www.irs.gov/taxpros/article/0,,id=159853,00.html

White House Aides Owe the IRS $831,000 in Back Taxes -- And they're Not Alone

A new report completed by the Washington Post revealed that 41 White House aides owe a combined $831,000 to the IRS. However, these aides are not alone. Federal employees nationwide owe the IRS an estimated $1 billion in unpaid taxes.

The Los Angeles Times reports:

Over the years a lot of suspicion has built up across the country about Washington and its population of opportunistic transients coming to see themselves as a special kind of person, somehow above average working Americans who don't work down in that former swamp.

Well, finally, an end to all those undocumented doubts. Thanks to some diligent digging by the Washington Post, those suspicions can at last be put to rest.

They're correct. Accurate. Dead-on. Laser-guided. On target. Bingo-bango. As clear as it's always seemed to those Americans who don't feel special entitlements and do meet their government obligations.

We now know that federal employees across the nation owe fully $1 billion in back taxes to the Internal Revenue Service.

As in, 1,000 times one million dollars. All this political jabber about giving middle-class ...

... Americans a tax cut. Thousands of feds have been giving themselves one all along -- unofficially. And these tax scofflaws include more than three dozen folks who work for the president with that newly decorated Oval Office.

Read more here

N.Y. Judge Calls Husband's Pre-Divorce Filing of Back Taxes 'Despicable'

According to Law.com, a New York judge recently ruled that a taxpayer’s move to file amended returns claiming over $1.5 million of extra income on the day of his divorce trial was a malicious attempt to stop his wife from recovering marital assets.

"It is well settled that expenses (including unpaid taxes) incurred prior to the commencement of a divorce action constitute marital debt which, under normal circumstances, should be equally shared by the parties. However, in those rare instances where a party's conduct in creating a debt is so egregious, shocking, fraudulent or malicious, the Court can exercise its discretion and refuse to apportion the debt," Acting Supreme Court Justice Andrew A. Crecca wrote in Maria C. v. Dominick C., 04775/08.

"Under the facts and circumstances of this case," the judge concluded, "this is one of those rare instances."

The Dix Hills couple, whose names were redacted from the decision, were married in 1987 and had four children. The husband runs a home-improvement company, the wife worked "in the secretarial field," as Justice Crecca put it, until their first child was born.

The wife, Maria C., filed for divorce in 2008 on the ground of constructive abandonment. The judge found that the couple had not cohabited as husband and wife since January 2007 and that the husband had refused "to engage in marital relations."

Shortly before the divorce went to trial in March, the defendant-husband, Dominick C., unilaterally filed marital tax returns for the years 2004 through 2007.

In the amended returns, the husband admitted earning more than $1.6 million in unreported income over those four years.

The husband filed the returns on his own initiative, as the couple was not being audited or under investigation, and without his wife's signature. He included on the cover page a list of assets the government might consider attaching, including the couple's house. The husband stated the house's value ($1.2 million), the size of the mortgage and the name of the bank that held the loan.

‘Dancing’ stars having tax troubles

We’ve seen it so many times that it may not even shock you anymore: Celebrities that owe back taxes. One of the newest additions to the “Celebrities with tax debts club” is Grammy Award-winning singer Macy Gray, who competed last year on Dancing with the Stars. Ms. Gray owes more than $50,000 in delinquent state taxes. Ms. Gray is trying to make right on her $50K tab and has set up a payment plan with California Tax franchise Tax board.

Shannen Doherty, unfortunately, has also joined the club. Shannon owes over $200,000 to the IRS and just over $44,000 to California.

Read the full blog post about Doherty here.

Bankruptcy and IRS Tax Debt

It is not uncommon that the people who come to me for back tax help have already deeply considered filing for bankruptcy. It is common to wonder if bankruptcy will solve all debt issues, including an IRS bill. The answer is: Well, sometimes bankruptcy will, but it all depends. (How’s that for a lawyer’s answer?) In any case, you must be careful because while bankruptcy might stop the IRS from filing a tax lien or pursuing collection activities, in most cases, penalties and interest are still accruing! Also, bankruptcy extends the amount of time the IRS has to collect on your debt—tax law normally limits the IRS to 10 years to collect against you. So all in all, after bankruptcy, your IRS tax debt may still be lurking around—and may even have more zeros tacked on.

The type of bankruptcy you file is a factor in whether or not your tax debt will be “discharged”. There are so many rules and exceptions when it comes to bankruptcy and unpaid tax debts. I recommend that if this is something you are considering that you talk to a professional—do not attempt to do this on your own.

For more information, check out this article I recently read on the topic of bankruptcy and taxes: http://bit.ly/dvn5h9.

Prince & The Taxman

It looks like another celebrity may be in trouble with the IRS. According to Carver County, Minnesota famed musical artist Prince is delinquent on his state tax liabilities. As this Associated Press article explains Price’s business (PRN Music Corp.) owes over $227,000 to local tax agencies, on top of his personal tax obligations.

PRN Music houses Prince's Paisley Park Studios in Chanhassen. County records list several other properties under his full name, Prince R. Nelson, as delinquent.

County taxpayer services manager Laurie Engelen estimates PRN Music and Prince's other properties owe about $450,000 in taxes.

PRN and Prince's studios don't have listed phone numbers. A talent agency that has represented Prince didn't immediately respond to e-mail seeking comment.

The delinquency list was published last week in the Chaska Herald.

Federal Workers Owe $1B in Back Taxes

According to an ABC News report, about 100,000 federal employees owe an estimated $1 million in unpaid back taxes. In an effort to recoup some of this revenue, Rep. Jason Chaffetz of Utah introduced a new bill that would require those federal workers to pay off their tax debts or lose their jobs.

"If you get to the point where the government is putting a lien on their property and they've exhausted their appeals ... the right thing to do is fire them as a federal worker," he told ABC. "If you're going to take federal tax dollars, you should be paying your federal taxes."

Of the 2.8 million federal employees throughout the country, more than 3 percent owed unpaid taxes in 2008, according to the IRS. And that's not including retired workers or military service members. Factor them in and the numbers spike to around 276,000 current or former workers owing roughly $3 billion, according to the report.

Chaffetz says his bill mirrors efforts by the Obama administration to end federal contracts with companies that owe taxes, which the president directed federal agencies to do in January.

Continue reading at ABC News.com…

Mcdonald's Co-Owner Admits Cheating IRS Out of More than $600k

Yesterday a McDonald’s franchise owner in Minnesota plead guilty to charges of IRS tax evasion. The husband and wife cheated the IRS out of more than $600,000 in payroll taxes, and could face up to five years in prison as a result.

According to the Star Tribune post below, the couple cheated the IRS by failing to turn over the employment taxes that were collected.

Stephen J. Kopel, 62, of Rosemount, pleaded guilty Tuesday in federal court in Minneapolis to willful failure to account for and pay taxes.

Kopel, whose S&P Foods Inc. operates a McDonald's near 150th Street and Robert Trail, failed to pay over employment taxes to the IRS from 2003-2006. The total in unpaid taxes from those years was $627,437.41.

Kopel faces a potential maximum penalty of five years in prison. Sentencing has yet to be scheduled.

The IRS Has $1.3 Billion for People Who Have Not Filed a 2006 Tax Return

The Internal Revenue Service announced that 1.4 million people did not file a federal income tax return for 2006. Now, when a taxpayer is entitled to a refund but does not file a tax return, that taxpayer will not be issued their refund—this is called an unclaimed refund. Unclaimed refunds total more than $1.3 billion for the tax year 2006! If you did not file a 2006 tax refund and think you have a refund due, you must file your 2006 return with the IRS no later than Thursday, April 15, 2010.
The IRS estimates the average unclaimed refund for tax-year 2006 is about $604.
There are various reasons taxpayers decide not to file a tax return, some people may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments. $604 is a good reason to file your 2006 tax return. Here’s the bottom line: taxpayers only have three years to file a tax return to claim a refund; after the three years have passed, money that should have been yours, becomes property of the U.S. Treasury. For 2006 returns, this three year window closes on April 15, 2010. Though back-year tax returns cannot be filed electronically, taxpayers can still speed up their refunds by choosing to have them deposited directly into a checking or savings account. If you need help getting back tax years filed hire a tax professional.

President Obama Directs Administration to Crack Down on Tax Cheats Seeking Government Contracts

In a new press release from the White House the Obama administration has directed the Office of Management and Budget, as well as the Treasury Department and other federal agencies, to take steps to block contractors who are delinquent on their taxes from receiving new government contracts.

He will also direct the IRS to conduct a review of the overall accuracy of companies’ claims about tax delinquency to be sure that when a company says it is paying taxes, it is telling the truth. The President will be joined today by Vice President Biden, Senator Claire McCaskill, Congressman Ed Towns, Congressman Brad Ellsworth, IRS Commissioner Douglas Shulman, and Chief Performance Officer of the United States Jeffrey Zients.

In addition, the President is calling on Congress to give the government the tools necessary to ensure that the public’s tax dollars are not used to boost the profits of companies who refuse to pay their taxes.

“By issuing this directive, all of us in Washington will be required to be more responsible stewards of your tax dollars. All across this country, there are people who meet their obligations each and every day. You do your jobs. You support your families. You pay the taxes you owe – because it’s a fundamental responsibility of citizenship,” said President Barack Obama. “The steps I’m directing today and the steps I’m calling on Congress to take are just basic common-sense. They’re not going to eliminate all of the waste or abuse in government contracting in one fell swoop. Going forward, we’ll also have to do more to hold contractors more accountable not just for paying taxes, but for following other laws as well.”

IRS Wants Sinbad to Walk Plank

From the Detroit News:

Comedian/actor Sinbad's financial problems just got a whole lot worse. The Benton Harbor native, who emceed Motown Records' 50th anniversary gala last month, owes more than $8.15 million in delinquent federal taxes and the U.S. Attorney General's office wants his house sold to help satisfy the debt, according to federal court records.

On Dec. 10, an assistant U.S. attorney asked a federal judge to foreclose on several tax liens and determine the 53-year-old comedian (full name Sinbad Adkins) is the true owner of a $1.5 million home in Hidden Hills, Calif.

The home's title is held by his brother, Michael Adkins, but since 1998 the federal government says mortgage interest and property taxes either have been paid by Sinbad's company Afros & Bellbottoms Productions Inc. or by the comedian's personal checking account.

Sinbad, who rose to fame on "Star Search" in the 1980s before starring in a string of movies like "Houseguest" and TV shows, really owns the property, the government claims. One possible hiccup, however. On Dec. 11, the day after the government filed the case, Sinbad filed Chapter 7 bankruptcy in California, listing between $10 million and $50 million in liabilities and less than $50,000 in assets.

The IRS claims Sinbad filed federal income tax returns for years 1998 through 2006 but failed to pay the reported taxes.

Federal Employees Owe $3 Billion in Taxes

Last week the IRS reported that over 276,300 current and retired federal employees owe approximately $3.04 million in unpaid taxes from 2008. Although high, this number is actually down from $3.59 million in unpaid taxes in 2007.

According to Washington Post.com, the list includes White House and Congressional staffers and current and former active-duty and reserve members of the military.

In a sign that the IRS practices what it preaches, the Treasury Department, which includes the tax-collecting agency, had the best compliance rate of Cabinet-level departments. Less than 1 percent of employees were delinquent with their taxes.

The Department of Housing and Urban Development fared worst among Cabinet departments, with slightly more than 4 percent of workers owing a combined $4.76 million.

Among all government agencies and departments, the U.S. Postal Service had the greatest number of tax delinquents. The government's second-largest employer had 28,913 workers -- or just under 4 percent -- owing roughly $298 million.

Fifty White House staffers owed a combined $812,917 in 2008, the IRS said. Up on Capitol Hill, slightly more than 4 percent of House staffers owed Uncle Sam $5.8 million, compared to 3.2 percent of Senate employees that owed almost $2.5 million.

IRS Says Retired Steeler Owes $631K in Back Taxes

From the Associated Press:

The Internal Revenue Service is alleging that a Pittsburgh Steelers Hall of Famer owes more than half-a-million dollars in back income taxes.

The IRS filed a civil action Monday in federal court in Pittsburgh. It accuses Mel Blount of owing more than $631,000 in federal income taxes between 1994 and 2006.

A summons for Blount has been mailed to the Mel Blount Youth Home, about 30 miles southwest of Pittsburgh. He could not immediately be reached for comment.

The 61-year-old Blount was a key member of the Steelers' first four Super Bowl teams, and his 57 career interceptions remain a team record.

Blount retired in 1983 and was enshrined in the Pro Football Hall of Fame in 1989 — the same year he established the youth home near Claysville.

How to Avoid Owing Back Taxes on Unemployment Benefits

At the end of last week I posted an entry on the RoniDeutch.com Tax Relief Blog with advice on how to avoid owing back taxes on unemployment. Check out the text of the entry below.

Taxable Income

Believe it or not, the money you receive from unemployment benefits IS taxable income. Which means you are going to owe both federal and state income taxes on it (if your state has an income tax). At the end of the year you should expect to receive IRS Form 1099-G, which will show the total amount you received in benefits.

Withheld Taxes

When collecting unemployment benefits you are not required to have any taxes withheld, but it is an available an option, and a good one at that! By having income taxes automatically withheld from your checks, you can avoid having to write a big check come next April. When you apply for unemployment, you can select to have a 10% federal income tax withheld, as well as a state income tax (the exact percent will vary per state). It is also highly recommended that you take a thorough look at your first unemployment check stub to make sure that the correct taxes have been withheld.

First $2,400 is Tax Free

Although you do have to pay income taxes on unemployment benefits, in 2009 you will not have to pay taxes on the first $2,400 in unemployment benefits you receive. Confused yet? Well, it only gets more complicated. The change is part of the new 2009 American Recovery and Reinvestment Act and only affects the 2009 tax year. All benefits from the year 2008 and before are fully taxable. For more information, check out this IRS news release on the topic.

Severance Pay

Do not forget that any severance payment you might receive is also considered taxable income. This includes any one-time payments, as well as payouts for accumulated vacation or sick leave benefits. It is considered regular income, and should be taxed at your appropriate tax rate.

Estimated Payments

If for any reason you do not choose to have taxes withheld on your unemployment, you should still consider making an estimated quarterly payment. It can be somewhat confusing to calculate and file these payments, but it beats getting hit with an underpayment penalty at tax time.

Check State Laws

Do not forget that your state is also going to tax your unemployment benefits! If your state has an income tax, then you will likely have to pay income taxes on your unemployment benefits. However, every state is different so before making any decisions, check out your state’s website, or ask a professional for help.

Continuous Job Hunt

One of best ways to avoid tax problems is to build up allowable deductions and credits. Luckily for the unemployed, the tax code provides a cornucopia of tax savings for job hunters. From education deductions and credits, to the job-hunting expenses deduction, to the moving deduction, the code is set up to help you avoid owing taxes while unemployed so long as you are actively seeking employment. In addition, most states provide similar deductions and credits. So, please do some research—you can start by checking out my blog entry on the topic here —or meet with a tax professional to find out how Uncle Sam is willing to help you on your job hunt.

Get Professional Help

Just because you are unemployed does not mean the IRS is going to let you get away without filing a return. In addition, your return is certainly going to look a little different now that you are receiving unemployment income. Having professional guidance through this financial change may prevent you from making some major mistakes on your tax return.

Gov. Sarah Palin To Pay Back Taxes

According to the Miami Herald, former Vice Presidential candidate and current Alaskan Governor, Sarah Palin, must pay back taxes on thousands of dollars in expense money she received over the past few years. A snippet of the article can be found below, but the full text can be found here.

The governor's office wouldn't say this week how much she owes in back taxes for meal money, or whether she intends to continue to receive the per diem allowance. As of December, she was still charging the state for meals and incidentals.

"The amount of taxes owed is a private matter," Sharon Leighow, Palin's spokeswoman, said in an e-mail. "If the governor collects future per diem, those documents would be a matter of public record."

The revelation about Palin comes as U.S. senators, including Sen. Mark Begich, D-Alaska, are under scrutiny over back taxes. A survey by the political newspaper and Web site Politico found that Begich was one of seven senators who acknowledged owing back taxes.

Some other state employees also owe back income taxes for travel payments and will be getting revised tax forms, Annette Kreitzer, state administration commissioner, said in an e-mail.

She wouldn't say which, or how many, employees will be receiving the notifications.

The payments became a touchy issue for Palin last fall when she was running for vice president and campaigned as a budget watchdog.

City Wants her Cent

From the Sun Chronicle:

A 74-year-old blind woman has been told a lien will be put on her South Attleboro home if she doesn't come up with a penny she owes on an outstanding utility bill.

Eileen Wilbur, of Glenn Street, said she discovered the notice of the potential lien after her daughter, Rose Brederson, came over to read her mail.

"It's so upsetting," Wilbur said. "It sent my blood pressure up so high."

The city sent Wilbur a letter dated Nov. 10 stating that if the 1 cent balance is not paid by Dec. 10, the city will assess a lien of up to $48 on Wilbur's next property tax bill.

"They wasted taxpayer money on the letter," Wilbur said, noting the 42-cent charge for a stamp.

City Collector Debora Marcoccio said the bill was sent out along with more than 2,000 others as the city tries to recoup outstanding balances before resorting to putting liens on property.

A computer automatically printed the letters for any account with a balance remaining, and they were not reviewed by staff before being sent out, Marcoccio said.

"It would be fiscally irresponsible for me to have staff weed through the bills and pull out any below a certain amount," Marcoccio said. " And what would that amount be?"

More Information on Fielder’s Tax Problem

The Milwaukee Online Journal posted this article with slightly more information on the story I posted about yesterday, Milwaukee Brewers First Baseman Owes the IRS $409,149.

Many people in the professional sports industry refuse to comment on financial issues, and this case is no exception. However, the author does bring up a few interesting points. For example, Fielder recently turned down a new contract valued at around $60 million, so it seems likely that he will be able to repay the liability. However, there are no court records to support the idea that he has already settled the liability, meaning it could still be in IRS collections.

IRS Targets Billionaire Philip Anschutz

According to the Wall Street Journal, the IRS is going after billionaire Philip Anschutz to him to pay owed back taxes totaling $143.6 million. It is part of their broad attempt to crack down on taxpayers that use confusing strategies to avoid paying capital gains taxes. Below is an excerpt of the article, but you can read the whole thing at IRS Targets Billionaire's Lucrative Tax Strategy on WSJ.com.

"The imbroglio stems from transactions that Mr. Anschutz entered into involving shares he owned in Union Pacific Corp. and Anadarko Petroleum Corp. in 2000 and 2001. The deals netted him cash, as well as a share of any future rise in the stock price, with a total value of roughly $429 million. The arrangement is also set up to protect him against losses if the stock price falls.
He contends the deals technically weren't completed sales for tax purposes, and thus didn't trigger tax obligations, according to filings in U.S. Tax Court in Washington. Consequently, he has not paid capital gains taxes on the transactions.

Mr. Anschutz -- an oil, railroad and media investor identified as the 41st-richest man in the U.S. by Forbes -- isn't the only person to use such an arrangement. Executives at companies including Starbucks Corp., Costco Wholesale Corp., Tyson Foods Inc., IAC/interactive Corp., Cablevision Systems Corp. and Apollo Group Inc. have all used similar "variable prepaid forward contracts" to cash in shares in these companies and related entities, according to securities filings.

The tax treatment of these executives' arrangements isn't public, so it isn't clear whether the transactions involved deferral of taxes of the type the IRS is targeting. Experts say tax deferral is a typical component of such arrangements."

Another Celebrity Tax Issue: Britney Spears

Wesley Snipes isn’t the only celebrity dealing with tax problems. Everyone’s favorite fallen pop star has also gotten into some tax trouble, but with the state of California. According to Access Hollywood, the state tax board has put a lien on one of Ms. Spears’ businesses, Britney On Line Inc. According to reports the company owes almost $24,000 in back taxes from the 2004 tax year.