Obama Seeks to Double Tax Law Enforcement Budget

From Reuters.com:

President Barack Obama proposed on Thursday nearly doubling funds to enforce U.S. tax laws next year, with an aim of more than quadrupling funding for tax compliance to $2.1 billion within five years.

The budget plan seeks $12.1 billion for the Internal Revenue Service, responsible for collecting and enforcing individual and corporate tax laws, for fiscal 2010, which begins October 1. That amounts to a roughly 5.2 percent increase over the IRS budget for 2009, which was $11.5 billion.

The budget proposal, which must be approved by Congress, includes a $890 million request to boost tax enforcement, including in the international arena, an increase of $400 million from 2009.

Underreporting of income by individuals and businesses led to a "tax gap" of $345 billion in 2001, the most recent year available, according to the government. Of that, corporate income tax and employment tax underreporting made up about $84 billion, according to a report by the Government Accountability Office.

The Obama administration said it would use the funds to further expand its efforts to boost compliance outside the U.S., "placing greater scrutiny on cross-border transactions and tax issues."

Earlier this week, Obama unveiled a series of proposals to overhaul mainly corporate tax rules and close loopholes in an effort he said would raise $210 billion over 10 years.

Included was a proposal to tighten rules on financial institutions that hold money abroad for U.S. citizens.

The U.S. government is currently suing giant Swiss bank UBS AG to get the names of thousands of mostly wealthy U.S. clients who may be trying to evade tax laws by keeping their money overseas.

White House Leans Toward Tighter Enforcement of Taxes

From The Wall Street Journal:

President Barack Obama's initiative to raise new tax revenue to pay for major policy changes likely will focus in the short run on tightening enforcement against businesses and wealthy individuals. In the long run, some experts believe it could lead to sweeping changes in the tax code itself.

White House officials disclosed the tax initiative on Tuesday, saying they intend to explore ways to better enforce the current code as well as improve it by eliminating corporate subsidies and untangling its many complexities. Mr. Obama has assigned the task to his President's Economic Recovery Advisory Board, an outside panel of economists and businessmen headed by former Federal Reserve Chairman Paul Volcker.

Administration officials said the group faces two limitations: no tax increases before 2011 and no tax increases on families earning less than $250,000 a year. The task force is to report its recommendations by Dec. 4.

The initiative reflects the Obama administration's re-evaluation of how the U.S. government pays for itself, as lawmakers drop some major proposals from Mr. Obama's budget plans for future years.

A growing number of experts and many lawmakers believe the current U.S. income-tax system isn't raising enough money because it is obsolete. They say the U.S. should consider switching to more efficient means of raising revenue -- for example, taxes on consumption.

"We're shooting ourselves in the foot economically by relying as heavily as we do on income taxes when the rest of the world relies on consumption taxes," said Michael Graetz, a Yale University professor and former Treasury official in President George H.W. Bush's administration. "I think you can tinker with the existing system, but anybody who believes they are going to get enough revenue simply by improving collection of taxes owed is fooling themselves."

States to Zero-in on Tax Cheats as Economy Sags

From the Associated Press:

The U.S. financial meltdown is creating brighter job prospects for at least one occupation: tax collector.

Several states — including New York, Massachusetts, California and Illinois — are beefing up tax enforcement and collection efforts as they face widening budget deficits.

"As their budgets quickly hit the skids and the pressure is on, they're going to be looking to see where those dollars are," said Verenda Smith of the Federation of Tax Administrators, an association of tax agencies from all 50 states.

Their targets range from major corporations to small businesses and individuals.

State governments are always seeking ways to narrow their "tax gaps" — the sometimes billion-dollar chasms between what they believe they're owed and what tax cheats and delinquents actually pay. The sliding economy is forcing states to intensify efforts to close the gaps.

In New York, tax collectors have been trumpeting their crackdown, aiming to persuade tax cheats to change their ways.

"At the end of the day, I'm not interested in a lot of arrests. I'm interested in increasing the number of voluntary taxpayers," said William Comiskey, the state tax department's deputy commissioner for enforcement.

New York tax collectors recently sent letters to thousands of small businesses advising them of the consequences of not collecting or remitting state sales taxes. They'll soon send letters to thousands of taxpayers whose returns were done by preparers who are under investigation for fraud, Comiskey said.

The warning letters are part of a broader campaign to publicize the crackdown and steer tax cheats to a new program that will allow them to come clean and avoid criminal prosecution.

Officials expect the program to yield $30 million a year, a pittance compared to New York's projected $8 billion budget deficit for next year.