What the war on “international tax cheats” means to the cowering civilians in the bombing area. International tax planning attorney Phil Hodgen dined with some Americans working abroad and reports:
For you, the American living overseas, tax return preparation is an order of magnitude more complicated than for someone living at home in the USA. There are extra forms to fill out. Extra stuff to report. Big, big penalties if you fluff things up. So you either spend an inordinate amount of your free time doing the tax returns yourself, or you pay a lot of money to an accountant to do the work for you. I don’t know what the people around the table last night spend, but it would be common to see tax bills of $3,000 – $4,000 in my experience. Let’s say you only spend $2,000. Lucky you.
The amount of tax that the IRS typically collects from people living in Europe and other high tax countries is ZERO. The foreign tax credit (PDF) ensures this. So does the foreign earned income exclusion (PDF).
Short story? You pay $2,000 or maybe much more to do a tax return that yields zero revenue for the U.S. government. And you burn up a lot of nights and weekends doing the paperwork.
Then you hear some Senator yammering about people like you and how you should be paying your “fair share” to the U.S. Treasury.
The whole post is very much worth reading. The pointless burden put on innocent taxpayers by the IRS shoot-the-jaywalkers enforcement of the already ridiculous international reporting rules is most disgraceful of IRS Commissioner Shulman’s many policy blunders.
And Here You Thought It Was Just Peasants Not Paying Any Income Taxes (Going Concern). They quote a Bloomberg article:
The percentage of U.S. taxpayers reporting adjusted gross income exceeding $200,000 who paid no U.S. income taxes increased in 2009 to 0.53 percent from 0.51 percent, meaning that one in 189 high earners avoided taxation, an Internal Revenue Service study found. The filers reported tax-exempt interest along with deductible charitable contributions, medical expenses and other items to legally reduce their taxable income.
Of course, the article is wrong in blaming muni bonds, which aren’t included in AGI in the first place. So how do $200,000 AGI taxpayers get to zero tax? It’s often where net income is overstated because the gross is in AGI but the expense generating the “income” is an itemized deduction. Some candidates come to mind:
- People with big margin interest accounts or other borrowing costs. If you have $200,000 if interest income, you can deduct $200,000 of expense incurred to buy the interest-generating assets. The income is “above the line” and included in AGI, but the deduction is a below-the-line itemized deduction.
- Gamblers. A busy slots player can easily burn through $200,000 in “winnings,” which are above the line, offset by below-the-line gambling itemized deductions.
Another likely example is Old folks in a full-time nursing home. The medical costs can go through the roof.
Readers – if you have other candidates, I’d love to hear about them in the comments. Related: somehow Linda Beale gets from 1 in 189 high-income taxpayers paying no federal tax to one in four. Not a chance. I’d say it was a typo, but she makes the assertion both in her headline and in the article text (UPDATE, 5/31: corrected now)
New state tax credits making solar a better investment for Iowans. (Sioux City Journal). Nonsense. It doesn’t make it a better investment, it just shifts the loss on the “investment” to us chump Iowa taxpayers who have to pay for other peoples’ solar toys.
Because Congressional accounting is always so reliable? FASB under political heat from Congress over lease accounting (TaxBreak)
You man people have to pay for something on their own? Hot, Hot, Hot: Air Conditioning Tax Credits Have Disappeared (TaxGrrrl)
Paul Neiffer: Be Careful if You Have a Foreign Account
Jack Townsend: Why We Cheat and Lie — Taxes Included
Howard Gleckman: Tax Reform: Going Long v. Going Prudent
Catch Robert D Flach’s Wednesday Buzz roundup of tax posts.
Next time he should proclaim himself “Lord Vader of the South” instead. “Self-proclaimed “Governor” of Alabama Sentenced to Ten Years in Federal Prison for Tax Fraud.” Just one more bit of proof that “sovereign citizen” tax schemes don’t work.
At least it’s an aim that any legislator can achieve. “Legislators aim at tax fraud“
Tags: Anthony Nitti, corporate welfare, Dan Meyer, Howard Gleckman, iowa tax policy, Jack Townsend, Len Burman, Linda Beale, Paul Neiffer, Robert D Flach, shooting jaywalkers, Shulman, tax crime, TaxProf, TaxVox, Tick Marks