Earlier this year, John Koskinen, the IRS Commissioner, complained about the IRS budget given to him by Congress. It was reduced by nearly $350 million for this fiscal year. Commissioner Koskinen claimed the “agency’s $10.9 billion budget is its lowest since 2008. When adjusted for inflation, the budget hasn’t been this low since 1998.”
Due to budget cuts, the IRS warned that customer service would be reduced. The Taxpayer Advocate, (the IRS watchdog of sorts) recently gave her semi-annual report to Congress and discussed this issue at length. Among her findings were 1) if you call, it is likely that only half of the estimated 100 million people will ever reach an IRS agent on the other end; 2) hold times will exceed 30 minutes or more; and 3) the IRS is mandated to provide callers with the option to speak to a live person on its helplines, but would not even clarify to the Taxpayer Advocate which lines are designated helplines when calling in.
Now it seems that the dire, reduced customer service has already been happening for the past year and was orchestrated by the IRS itself. A new House Ways and Means report shows that, “while congressional funding for the IRS remained flat from 2014 to 2015, the IRS diverted $134 million away from customer service to other activities. In addition to the $11 billion appropriated by Congress, the IRS takes in more than $400 million in user fees and may allocate that money as it sees fit. In 2014, the IRS allocated $183 million in user fees to its customer service budget, but allocated just $49 million in 2015–a 76 percent cut.” How much more will they cut for FY2016? How much worse will customer service get?
Just as Obama dared to close national parks and monuments and cut off treatment for cancer kids during the government shutdown, in order to inflict pain on ordinary citizens, the IRS decided follow the same tactic and abrogate its basic responsibility to help taxpayers with compliance. Reducing the ability to provide customer service is particularly shameless.
For all the complaints about lack of budget funds, the Weekly Standard made note of a particular irony: “The IRS’s total annual $11 billion budget is dwarfed by the amount of improper tax payments it makes each year. According to the report, the IRS paid out $17.7 billion in improper Earned Income Tax Credit payments (which are supposed to help poor and low-income individuals) and an additional $6 to $7 billion in improper child tax credit payments.”
That’s double the amount of the entire IRS budget paid out to taxpayers incorrectly. Perhaps if the same amount of diligence the IRS took when targeting conservatives was paid to processing tax returns properly, there wouldn’t be such whining from the IRS Commissioner. And maybe some more phone calls would be answered.
The vote to confirm Loretta Lynch might happen as early as this week. The process has been stretched out under the auspices of being contingent on passing a human trafficking bill in the Senate, but it is just as likely that the vote was put quietly on hold in a “logjam” until 51 votes were clinched for certain. It has been a struggle to get enough votes throughout the process, with the 51 vote only been secured at the beginning of April. 5 Senate Republicans that were needed are: Sens. Orrin Hatch (Utah), Lindsey Graham (S.C.) and Jeff Flake (Ariz.) — all members of the Judiciary Committee — and moderate Sens. Mark Kirk (Ill.) and Susan Collins (Maine).
Lynch’s opponents have been painted as racist and anti-immigrant. But the most abhorrent reason for nominating Lynch is truly in the realm of civil rights, with the media turning a blind eye to her antics, specifically related to civil asset forfeiture.
The most ironic about the matter is that “Ten civil and human rights organizations, including the National Action Network, which is headed by the Rev. Al Sharpton, the League of United Latin American Citizens and the NAACP wrote a letter to McConnell [last] Friday urging a vote on Lynch.
A couple of months ago, I wrote an open letter decrying the nomination of Loretta Lynch and spelled out her egregious record on the issue of civil rights, which should be chilling for anyone considering her nomination. I will repost it here below, since the media has failed to give any real scrutiny to her time in New York.
The nomination of Loretta Lynch to the position of Attorney General is before you. Although her intelligence, experience, and poise may appear to make her a superb candidate, it is clear now that she would be an extremely poor – even dangerous — choice due to her strong position on civil asset forfeiture.
The need to safeguard civil liberties and individual rights is a priority for all Americans. Do you really want to consider confirming a person who has been exceedingly proud of her record of taking property without due process…of practicing guilty until proven innocent? This is a very serious issue, not to be taken lightly.
Civil asset forfeiture is a particularly egregious abuse of power, allowing the government to seize property and cash if it merely suspects wrongdoing, even with no evidence and no charging of a crime.
Loretta Lynch was particularly lucrative in this regard as the U.S. attorney for the Eastern District of New York. Between 2011 and 2013, the forfeiture operations under her management netted more than $113 million in civil actions. Lynch’s division was among the top in the country for its collections. But this is not something to be proud of.
In one particularly appalling case, Loretta Lynch’s office seized nearly a half-million dollars from two businessman in 2012 and sat on it for more than two years without a court hearing or appearance before a judge. In fact, no crime had been committed. These men were denied due process and deprived of their assets without warning or criminal charges. Lynch suddenly returned the money just weeks ago on January 20, 2015 — on the eve of her confirmation hearings, having found no wrongdoing by the men either.
During Lynch’s confirmation hearing testimony pertaining to civil asset forfeiture, Lynch stated that “civil and criminal forfeiture are very important tools of the Department of Justice as well as our state and local counterparts.” She further argued that forfeiture is “ done pursuant to court order, and I believe the protections are there.” This is, in fact, not true. In the case mentioned above, there was not only no court order, but also no hearing at any time in nearly three years. That is unconscionable. And this is only one of many similar, well-documented, incidents.
The problem of civil asset forfeiture is that the government can confiscate money or property under the mere suspicion of a crime without ever actually charging someone. The person must prove his innocence to reclaim what was seized, which is a burden of time and money and readily seems to go against our staunch American belief of “innocent until proven guilty.” What’s more, besides the obvious threat to civil liberties, those most likely to be victims are poor and minority citizens.
Thankfully, in recent months, individuals and organizations on both sides of the political aisle have come together to demand reform to this unjust practice. Bipartisan legislation has been proposed in Congress; groups ranging from the Heritage Foundation to the American Civil Liberties Union have been increasingly critical of civil asset forfeiture practices. Even Eric Holder has called for changes and the IRS has recently and publicly pledged to reduce its involvement as well.
Loretta Lynch and her record on civil asset forfeiture represents the worst of this “tool for law enforcement”. A vote for her confirmation is a vote you will never be able to walk back. Do you really want to confirm a person who is so deeply committed to civil asset forfeiture at the very same time in America that there is strong bipartisan support for protecting civil liberties and walking back the laws pertaining to this practice? It makes no sense to proceed down this path.
Loretta Lynch may arguably be the most successful forfeiture agent in government today. This is not a positive quality for an Attorney General. The practice is abusive and her tactics even more so. Voting to confirm a person with such an atrocious civil liberties record is certain to cause problems for you down the road when you have to answer for your support. Therefore, on behalf of all Americans, I urge you to vote no for her confirmation.
I have no particular favorite right now in the GOP nomination fight. As a CPA, I pay close attention to the economic policies of the various candidates.
Carly Fiorina spoke to New Hampshire Republican Party’s First in the Nation leadership summit in Nashua, N.H on the subject of small business. Being the former CEO of Former Hewlett-Packard, Fiorina offered a decent perspective, which hasn’t really been discussed at length so far by many of the other candidates.
“The heroes of the American economy are small businesses and family-owned businesses”
“For the first time in U.S. history, we are destroying more businesses than we are creating”
“All of the things they are doing up there are landing on us down here. The weight of the government is literally crushing the potential of the people of this nation”
I don’t particularly think that Fiorina has the ability to be much of a viable candidate, especially considering her failed Senate campaign against Barbara Boxer in California. I do appreciate her calling out the government’s anti-business policies, something about which I have written extensively.
Whoever becomes the Republican nominee needs to be able to speak clearly and definitively about economic issues and call out the failed government policies of higher taxes, increased regulation, and minimum wage nonsense. Small businesses have borne the brunt of Obama’s heavy-handedness, and our economy has failed to recover adequately because of it.
“Life, liberty, and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty, and property existed beforehand that caused men to make laws in the first place” — Frédéric Bastiat in “The Law.”
If you haven’t read “The Law” yet, you can download it here for free. It is one of the most marvelous works of economics and philosophy.
If you are an American living abroad — dubbed an “expat” — you are still expected to pay income taxes and file income tax reports to the IRS. The United States is the only country in the world that has this requirement and it is mandatory until and unless one renounces citizenship.
Being an expat in recent years has become more difficult. In 2010, Congress passed FATCA, which was enacted as a means to find foreign accounts of US taxpayers (such as a Swiss bank account). Overseas banks must also report to the IRS any bank accounts held by Americans; this has led to the unintended consequence of many banks choosing not to service expats because of the additional headache for the particular financial institution.
And now compliance has become even more onerous for expats. The IRS has announced the permanent closing its three remaining walk-in offices at the U.S. embassies in London, Paris, and Frankfurt, by the end of the fiscal year. Taxpayers abroad are expected to use the internet for all their tax needs. But woe to the international taxpayer who makes a filing mistake; you can be sure that the IRS will levy hefty fines.
“For foreign citizens who need an Individual Taxpayer Identification Number (ITIN) to do things like sell property in the U.S. or claim dependents on a U.S. tax return, the process could be even more difficult. Ms. Otto, the accountant, says that when she was based in France, foreigners could get an ITIN by getting a notarized copy of their passport and submitting that with an ITIN application to the IRS at the embassy locations abroad.
But now foreigners who need an ITIN have to mail their passport to an IRS office in the U.S. for verification. “What person in his right mind is going to mail his passport to the IRS?” she asks.”
The number of taxpayers living abroad has grown substantially in the last five years, with some estimates as much as a 50% increase. It is certainly not a time to reduce services to our overseas Americans. However, the IRS sees fit to protest budget cuts by doing that — just not just abroad, but in all facets of customer service to taxpayers.
*To get an idea of tax compliance for expats, check out this very good, comprehensive list of important forms below
Common Overseas Tax Forms
Form 2555 & 2555- EZ: These forms are for calculating your Foreign Earned Income Exclusion (FEIE) and to calculate your Foreign Housing Exclusion or Deduction. If you meet certain foreign residency requirements, you may be able to exclude up to $99,200 of earned income in 2014 and a portion of your foreign housing expenses from U.S. income tax. Note that this exclusion does not apply to self-employment taxes. If you are self-employed abroad, you are still subject to U.S. Social Security taxes unless you live in one of the 25 countries with which the U.S. has a Social Security Totalization Agreement. The FEIE is generally advantageous to use when income tax rates in the foreign country are lower than in the U.S. and/or your total earned income is below the exclusion threshold.
Form 1116: This is the Foreign Tax Credit form and it is used to claim a credit against your U.S. income tax for income taxes paid in the foreign country. This credit applies both to foreign earned income (wages, self-employment income, etc.) and unearned income (interest, dividends, capital gains, rents, etc.). This is generally the most beneficial form to use for residents of countries with high income tax rates, those with children eligible for the additional child tax credit and those interested in contributing to U.S. retirement plans (traditional and Roth IRAs, SEPs, solo 401(k)s, etc.)
FBAR Form FinCEN 114: This form is independent of the tax return and a separate filing requirement. The FBAR applies to any U.S. person who owns, has beneficial interest or signature authority over foreign financial accounts that exceed $10,000 in the aggregate in value at any time during the year. If you have any foreign bank accounts, this also has to be disclosed on Part III of Schedule B, whether the FBAR is required to be filed or not. FinCEN 114 must be e-filed and cannot be mailed, with the absolute filing deadline on June 30, with no extension possible.
Form 8938: This form, also known as the Fatca form, is used to report Specified Foreign Financial Assets and the income derived from them. There is some overlap with the FinCEN 114 Form (FBAR), but the filing thresholds are higher, and depend on the taxpayer’s residency and marriage status, with different thresholds for the highest value reached during the year and on the last day of the year. These thresholds range from a low of $50,000 to a high of $600,000.
Other Overseas Tax Forms
Not every tax preparer will be familiar with the forms described below. If any of these forms apply to your situation, you will need to make sure that your preparer is qualified to do the work. Many of these forms are quite complex and require special training to prepare. The IRS, for example, estimates that each Form 8621 requires almost 17 hours of record-keeping and more than 14 hours to prepare. These are the forms that are most commonly missed or filed with errors. The list that follows is illustrative and not comprehensive:
If you received a gift or inheritance from a foreign person, even though it will generally not be taxable in the U.S., depending on the amount, you may have to report it in Form 3520. This form is also used to report transactions that you had with foreign trusts. If you are grantor in a foreign trust, you are likely required to file Form 3520-A in addition to form 3520.
If you run your own business in a foreign country, you may have established a company to conduct your business. Depending on the entity’s classification for U.S. tax purposes, which will be a corporation by default or will depend on the classification election made through Form 8832, you may be required to file Form 8858 if the entity is disregarded; Form 5471 if the entity is classified as a corporation; or Form 8865 if classified as a partnership. Transactions between you and your foreign company may have to be reported on Form 926.
If you live in a country with which the U.S. has an income tax convention, you may be entitled to certain treaty benefits with respect to your foreign retirement accounts, re-sourcing of certain U.S. source income to avoid double taxation, taxation of foreign social security, etc. The treaty-based positions taken in your return may have to be disclosed in Form 8833.
If you have a brokerage account or other investments (including some foreign retirement accounts) in a foreign country, these investments may be classified as Passive Foreign Investment Companies or PFICs, which are subject to special tax rules that are generally unfavorable in nature. Most foreign mutual funds and ETFs are classified as PFICS. Each PFIC you own is reported on a separate Form 8621.
Other forms that could also apply to your situation include Form 5173: Transfer Certificate which is issued by the IRS upon the death of an American citizen overseas, and is a discharge form confirming that all taxes had been paid and which is often required by banks and brokerage firms to release funds to the estate; Form 5472 for certain U.S. corporations with 25% foreign ownership and certain foreign corporations engaged in a U.S. trade or business; and Form 720, Quarterly Excise Tax Return, to report and pay excise taxes on certain foreign life insurance premiums.
Common Tax Forms – With Some Overseas Components
The following forms are common for U.S. taxpayers but also have some international elements to be aware of:
1040: Ultimately all of your income (foreign and domestic) should end up on your form 1040. Americans married to non-Americans may be able to us the Head of Household filing status instead of married filing separately. In some cases adding a non-citizen spouse (and their income and assets) to the U.S. tax return can be beneficial. All dependents on the return, must have a U.S. tax ID number.
1040: – Schedule A: Some expenses related to being overseas may be able to be claimed as itemized expenses such as certain foreign taxes, certain moving expenses and travel, mortgage interest, medical and dental expenses etc.
1040: – Schedule B: Part III of Schedule B has information related to foreign trusts and foreign bank accounts. Make sure you check these correctly.
1040: – Schedule C. If you live overseas and are self-employed, you will still have to file a Schedule C. You may be subject to U.S. Social Security though Totalization Agreements may negate the need for paying into U.S. Social Security. You will also generally be able to contribute to a U.S. solo 401(k) or SEP IRA but these may not be tax-deferred in the country where you live and work.
For more information about overseas tax returns, you should check the IRS’s website, which has thousands of pages for your reading pleasure in a section dedicated to International Taxpayers. A good starting point for any new overseas American is Publication 54: Tax Guide for US Citizens and Resident Aliens Abroad.
It’s frustrating when popular TV economists perpetuate economic myths that have been thoroughly debunked. Last week, Becky Quick, host of CNBC’s “On the Money”, interviewed Bethany McLean, Contributing Editor over at Vanity Fair. They discussed the subject of equal pay for women; unfortunately, they both asserted that women only earn 77% of pay that men do, a charge that is simply untrue, but endlessly repeated.
Factors such as education paths, child bearing choices, hours worked, and job risk are not always equal for men and women. Taking these items into consideration, the gender wage gap shrinks almost entirely, with likely no more than a 5% variance. This is also supported by the simple economic reality that if women actually did make 23% less than men in wage costs, businesses would almost entirely hire women as a means to minimize labor costs and maximize profits. Since this does not actually happen, it is obvious that the 23% wage disparity is merely a distortion perpetuated by the Left, and most notably by the White House.
It’s one thing for partisan politicians to spew such nonsense, but for an economics reporter to peddle it as well is absolutely irritating and reckless. She should know better.
The great Walter Williams released a new video yesterday on the role that profit plays in the free market. Do yourself a favor and take 5 minutes to learn how important profits and losses really are.
“Is profit a dirty word? Would the world be better off without them? Or are profits progressive — the only thing that can move potatoes from Idaho to Manhattan and medicine from America to Africa? Professor and economist Walter Williams explains.”
If NYC ever survives a mayor as economically ignorant as Bill de Blasio, it will be nothing short of a miracle. Not only has he been committed to “combating income inequality” by advocating raising taxes on the wealthy, now he also is pushing for a minimum wage hike to more than $13/hour as a means to bolster the economy.
De Blasio recently announced, “It’s time for New York City businesses to take bold action—not only because hardworking New Yorkers deserve a path to the middle class and an opportunity to stay in the middle class—but because giving them that opportunity would do so much to help our economy.”
His brilliant plan is to raise the wages past $13/hour in 2016, and then indexing it to inflation over the next 3 years so that the minimum wage will be $15/hour by 2019. The current wage is $8.75/hour, which will be $9.00 as of January 1, 2016. Where does de Blasio think that extra $4/hour is going to come from? He told the business owners that it’s time do “do your part”.
Unfortunately for the workers of NYC, they have a mayor who doesn’t understand that raising the minimum wage adversely affects those whom the wage hikes purport to help, especially the poorest in NYC. Less persons would be employed at $13/hour and $15/hour than if the minimum wage had not been hiked at all. Put it another way, many would see their hourly wages drop to $0/hour. That is not “opportunity”. That is unmitigated disaster.
Roughly 2 weeks ago, I wrote about the IRS sending out corrected tax forms for the 820,000 Obamacare users who received incorrect 1095As in late January. On March 22, it was reported that, “Federal officials said on a Friday press call that about 740,000 corrected forms have been mailed out or can be downloaded from the HealthCare.gov site. About 80,000 corrected forms will be mailed and available online next week”
However, it is apparent that the IRS still has not fixed those users who remain in tax limbo right now, because it was announced that those still affected with incorrect forms are eligible now for an extension until October 15 — but only if they request it.
Those other 740,000 users who didn’t receive their correct forms until the third week of March are not eligible for the extension, but instead have to scramble to get their taxes filed by April 15th. These users were delayed an additional 7 weeks after the government failed to send them their correct 1095As on time (January 31). The 1095A is the proof of insurance for tax forms, and is necessary to calculate whether or not the proper subsidy amount was given in 2014.
The kicker here is that a person must know that he or she needs to request the tax extension. Otherwise, they will still responsible to have their taxes filed for April 15th.
This is nearly as absurd as the scenario that is unfolding with the Obamacare users who are both uninsured and do not make enough income that requires them to file taxes. In order to claim the penalty exemption based on lack of adequate income…they must file a tax return. And what if they don’t know to do so? If they do not claim their exemption, they will be on the hook for the “shared responsibility” payment and “are likely to get hit with an unexpected tax bill later on.”
Obamacare continues to be an onerous, burdensome mess for this country.
This year is the first year for which proof of health insurance, or payment of the “shared responsibility” tax/fee/penalty, is required to be accounted for on one’s tax return. But what happens when a person does not meet the income threshold to actually have to file their taxes?
The Weekly Standard points out that a conundrum exists for the poor. Under Obamacare rules, the economically disadvantaged,
“can get an income-based exemption if ‘you don’t have to file a tax return because your income is below the level that requires you to file.’ Sounds simple enough, right? Until further investigation reveals that this exemption is claimed directly on the tax return. That’s right – the tax return you’re not required to file.”
So the fate of those who are uninsured and also do not file? If they do not claim their exemption, they will be on the hook for the “shared responsibility” payment and “are likely to get hit with an unexpected tax bill later on.” That is sloppy at best and egregious at worst.
Obamacare purports to help those who, economically, are the least among us. The law provides financial help to purchase healthcare for the poor, or a path of exemption for those who cannot afford healthcare or the uninsured penalty. Yet it fails to provide a mechanism of compliance for those who among us who are too poor to pay taxes and the penalty. In this regard, Obamacare falls short of its most basic goals — and will wreak tax havoc in the future for those poorest ensnared by this deficiency.
