INCLINE VILLAGE, Nev. - Acting IRS Commish Steven Miller was recently heard to whine, in a letter to Rep. Sander Levin (D-MI) that unless Congress acts by year end with respect to "patching" (bureaucratese for actually doing something of value) the dreaded alternative minimum tax (AMT), IRS would have to operate the 2013 filing season based on "pre patch" numbers, resulting in filing delays (because the bureaucrats' computers can't be fixed soon enough) and, more importantly, subjecting something like 28 million unsuspecting taxpayers to the AMT!
The so-called "patch" has become Congress' way of temporarily "fixing" the numbers such that the AMT doesn't kick in until an income floor is reached. If Congress doesn't act this year, that floor will revert to its 1998 level! A return to the Clinton era!
Miller says that IRS' computers are expecting Congress to once again "patch" this mess, and that doing otherwise would involve "substantial design and engineering work," more bureaucratese for "we might have to work a little overtime so that the system doesn't completely fall apart."
Meanwhile, the National Taxpayer Advocate recently opined that the Revenooers should back off a little when it comes to going after folks with foreign assets and income. Advocate Nina Olson suggests that IRS change its "Offshore Voluntary Disclosure Initiative" (OVDI) so as to only penalize taxpayers based on their level of non-compliance, rather than hammering everybody with the same onerous penalty scheme.
The civil penalties for not reporting all of those foreign financial accounts can range up to the greater of $100,000 or 50 percent of the amount in the account at the time of violation. Pretty steep. And the criminal penalties for violating the account reporting requirements while also violating certain other laws can be as much as $500,000 in penalties or 10 years in the clink, or both!
Olson thinks a somewhat more fair approach would be for IRS to define four categories of violators, and penalize accordingly. To wit:
• Category I - Taxpayers who properly declared their income, but merely failed to separately report the existence of the foreign accounts would be allowed to fess up with no penalty.
• Category II - Taxpayers who failed to properly report their foreign income, but whose tax liability is under a certain threshold would be penalized, though comparatively modestly.
• Category III - Taxpayers with a valid reasonable cause for failure to file their foreign account reports might be excused from penalties.
• Category IV - Bad boys with fact patterns suggesting a willful disregard of the foreign account rules would continue to be subject to the onerous penalty structure presently in the law.
Bottom line: follow the rules and you won't get your butt kicked in any case!
- CONSULT YOUR TAX ADVISOR - This article contains general information about various tax matters. You should consult your CPA regarding the implications to your own particular situation. Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno. He can be reached at 831-7288, welcomes comments at firstname.lastname@example.org, and invites readers to consider his other commentary at http://blog.nolo.com/taxes.