by Brian Mahany
Each year, the Treasury Department Inspector General for Tax Administration (“TIGTA”) audits the IRS to measure the agency’s performance. 2010 was not a great year for the Service or taxpayers. The Inspector General concluded that, “During FY 2010, the IRS encountered many challenges, including a variety of tax provisions that were created, extended, or expanded.” There were over 100 new provisions alone just from the American Recovery and Reinvestment Act and the Patient Protection and Affordable Care Act.
To ease the burden of coming up to speed on these new laws, the IRS hired over 3000 new revenue agents, tax compliance officers and other personnel. Unfortunately, the private sector doesn’t have those same resources.
According to the report, the tax changes last year were the most significant faced by both the IRS and taxpayers in at least 20 years.
The purpose of this blog post isn’t to bash the IRS. They are as overwhelmed as taxpayers are. The blame lies with Congress. While any one tax change or new law might make sense, something is wrong when you make so many changes that the IRS can’t keep up even after hiring 3000 new people.
If the Service can’t keep up despite thousands of new agents, how is a small business owner supposed to keep up? The net effect of such a complex and ever-changing tax code is to turn taxpayers into what I call “innocent criminals.” Criminals because they broke a law or regulation but “innocent” in that they had no idea that they were breaking the law.
We recently encountered this with the flood of people who came forward after learning of the offshore tax amnesty plan (OVDI). Most of the people we helped had no idea that they had to tell Uncle Sam about their foreign bank account. While it’s easy to say that businessmen who intentionally hide money in offshore accounts should be prosecuted, what do you say to the Indian man working in the U.S. who sends money home to India to care for his family? What about the American taxpayer whose parents live in Mexico when he is added to their account to help pay their bills because they have dementia? The U.S. taxpayer who inherits an account in Ireland after a grandparent died? Should these people be prosecuted as well?
Our tax system is becoming more and more complex. Until there is the political will to simplify the tax code, the IRS and taxpayers are left in limbo. Hiring a competent CPA or tax attorney is becoming a necessity. While we would like a system where lawyers aren’t needed, that is not the state of the Internal Revenue Code in 2011.
An added advantage of hiring a lawyer or accountant is the ability to obtain an abatement of penalties if the accountant or lawyer is wrong. Relying on your brother-in-lw who does returns on the side won’t wash with the IRS but if you reasonably relied on the advice of a tax professional, you stand a good chance to have penalties abated if a mistake was made.
If you are a small or medium sized business or individual taxpayer, contact us if you have a problem with the IRS or the state revenue department. It’s often far less costly to talk to us before you make a mistake or receive a large audit assessment. Our team of tax lawyers can help you with a variety of tax matters including tax planning, offshore income and foreign bank accounts, audit defense, FBARS, voluntary disclosures, penalty abatements, collections and criminal tax investigations.
Mahany & Ertl, LLC – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine and San Francisco, California (satellite). Services nationwide.