WebCPA: IRS Steps Up Enforcement on the Rich

WebCPA is reporting that the IRS is planning to step up enforcement efforts against complex tax sheltering strategies employed by wealthy taxpayers.

While we generally support such an idea, we also wonder (1) if these actions will be combined with any kind of tax rate flattening strategies from Treasury and (2) how fairly it will be implemented (i.e., will there be any ’operational exemptions’ for politically connected taxpayers?).

WebCPA also reported that Congress’ Joint Committee on Taxation is drafting legislation that would force offshore account data to be provided to the IRS.

Philosophically, we agree with this idea too, but there are some risks associated with it. First, and perhaps most obvious, are the credibility issues around Rep. Rangel’s involvement, given his personal tax issues and the apparent kid glove treatment he received from the IRS. Second, a measure like this may intensify perceptions that the U.S. government is becoming increasingly burdensome to deal with in international financial transactions, as occurred in the wake of the Patriot and Anti-Money Laundering Acts. Lastly, there’s some risk, perhaps remote, that this pushes human capital away from the U.S. To the extent that any future expatriates are simply tax evaders who have no ethical qualms about enjoying public services paid for by less wealthy taxpayers, it’s probably a plus. But to the extent that productive citizens who simply feel that they are being asked to pay more than their fair share start turning in their U.S. passports, it could be a serious problem, one that we’ve raised caution flags about before.

Finally, it strikes us that there’s an interesting parallel at work here, as a looming global war over tax revenues might be seen as echoing the global war that loomed over natural (and financial?) resources in the 1930s. The difference in this episode is that the U.S. is the open aggressor. Congress and the Treasury are clearly walking a tightrope on tax issues at the moment.

URLs:

http://www.webcpa.com/news/IRS-Enforcement-Rich-52207-1.html?ET=webcpa:e551:5099a:&st=email

http://www.webcpa.com/news/Congress-Clamps-Down-Foreign-Tax-Evasion-52202-1.html?ET=webcpa:e551:5099a:&st=email

http://symmetrycapital.net/index.php/blog/2009/10/tr2-rangel-holds-onto-ways-means-post/