Bush Calls for Permanent Tax Cuts
By CONNIE CASS
Associated Press Writer
WASHINGTON (AP) — President Bush reminded Americans ahead of Monday's tax deadline that they were saving money through his 10-year tax-cut plan and he urged Congress to make the reductions permanent.
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The president was traveling to Cedar Rapids, Iowa, on Monday to promote the tax cuts as the Republican-led House prepared to take up a bill that would keep them in place beyond 2010.
"I urge Congress to pass this vital measure," Bush said Saturday in his weekly radio address.
But that probably will not happen this year because of opposition from Senate Democratic leaders who say the cuts have darkened the nation's long-term budget picture.
The Democrats blame Bush's $1.3 trillion in tax cuts for contributing to the resurgence of deficits and siphoning money from domestic programs such as education and Medicare.
On the radio, Bush said the tax cuts were "a crucial part of my administration's overall economic growth agenda, to create more high- paying jobs."
He said the cuts had brought most taxpayers a share of $57 billion in reductions, and will keep increasing through 2010.
"This year, your tax rates are lower and you will keep more of your hard-earned money to spend or save," Bush said. "And perhaps the best news of all is that even more relief is on the way for many years to come."
The president noted that the child tax credit was increased to $600 for the returns being filed this year and that taxpayers can save more of their money tax-free through education saving accounts, individual retirement accounts or company 401(k) plans.
In 2010, when the tax cut is fully phased in, he said, 43 million married couples will see their taxes reduced on average by more than $1,700 per year and 3.9 million low-income Americans will have their tax liability completely eliminated.
Bush and his wife, Laura, paid $250,202 in federal income taxes this year — 31 percent of their $811,100 adjusted gross income for 2001, according to forms released by the White House.
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APRIL 14, 13:45 ET
War Tax Resisters Oppose Paying Tax
By PAUL GLADER
Associated Press Writer
BERKELEY, Calif. (AP) — Tax day is here, and Susan Quinlan hasn't filed her form 1040 yet. She doesn't plan to.
As an anti-war activist, she objects to paying taxes that fund the nation's defense budget.
Most of the 10,000 or so conscientious tax resisters nationwide send letters to the Internal Revenue Service each year explaining that they are withholding their cash and putting the money into an interest- earning fund. Then they donate the interest to what they deem life- affirming, peaceful causes.
"We're upset that our tax money is funding militarism," said Larry Harper, a war tax resister from Sebastopol.
"This is not tax evasion," said Bill Ramsey of St. Louis, a spokesman for the National War Tax Resistance Coordinating Committee. "This is tax refusal and redirection. It's a public act and an act of conscience."
The practice isn't without risk — the IRS considers resisters to be tax cheats. Harper said the IRS took $1,200 from his bank account the first time he resisted in 1982 but has left him alone ever since. Others say the IRS regularly takes money out of their bank accounts and garnishees their wages.
Critics argue that war tax resisters could take advantage of charity tax credits, already part of the tax system. They also say resisters are selfish because they benefit from government services funded by citizens who do pay taxes.
"The vast majority of salaried employees file and pay voluntarily," IRS spokesman Anthony Burke said. "Most Americans, I think, are law abiding and honest citizens."
Just days before Monday's tax filing deadline, Quinlan and Harper led a workshop in Berkeley and dispensed brochures, information and support to 15 tax resister recruits.
The movement started after the Vietnam War and rose again during the Persian Gulf War. Quinlan said interest has been piqued this year by the war in Afghanistan.
"I wondered after Sept. 11 if we'd be deluged with people," Quinlan said. "We weren't initially. But we are seeing more now."
Instead of putting a check in the mail Monday, Quinlan and some of her fellow Northern California war resisters will have a party and make contributions to charities from the $10,000 from interest earned on their diverted tax endowment, which they call the People's Life Fund.
Ramsey and 50 resisters in St. Louis have purchased $10,000 in medical equipment for clinics in Afghanistan. Outside the IRS office in St. Louis on Monday, they will present the equipment to nurses who will take the supplies overseas.
Nearly 29 alternative funds across the country plan to use $100,000 in interest this year to make grants to battered women's shelters, homeless programs and AIDS prevention.
Some conscientious objectors keep income below certain levels to avoid paying taxes completely. Some just refuse to pay any federal taxes, while others send about half of what they owe, figuring that about half would have gone to military spending for national defense and veterans benefits.
The IRS will collect about $2 trillion this year from 132 million individual income tax returns. Although wealthy individuals keeping money off shore is a bigger problem than war tax resisters, the IRS wants to crack down on all lawbreakers large and small.
"We have to administer the federal law with uniform fairness," Burke said. "We are not serving certain taxpayers well if we are allowing other taxpayers to get a free ride on their backs."
Resisters can face property liens, garnisheed wages, ruined credit ratings and as much as $100,000 in fines and five years in jail.
Quinlan says resisting is a yoke as much as it is liberating. She spends hours each year figuring up the taxes she won't pay, writing letters to government agencies, selecting charities and managing escrow accounts.
"We actually have to do a lot more than if we were actually paying taxes," Quinlan said. "It's not a way of getting off easy."
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On The Net:
National War Tax Resistance Coordinating Committee: http://www.nwtrcc.org
One Million Taxpayers for Peace: http://www.onemilliontaxpayersforpeace.org
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APRIL 14, 13:55 ET
More Russians Paying Income Taxes
By ERIC ENGLEMAN
Associated Press Writer
MOSCOW (AP) — Like many Russians, Nellie dreaded her annual visit to the local tax inspectorate, with its long lines, surly officials, and Byzantine tax forms.
But during her last visit, the 66-year-old grandmother, who supplements her meager pension by cleaning apartments, received a pleasant surprise.
"My taxes were three times lower," she said. "They must have understood they were too high before."
She's not alone. The government says more Russians are paying income tax, thanks to an innovation that would make American billionaire and presidential aspirant Steve Forbes proud.
Last year, President Vladimir Putin took a page from Forbes' campaign book and introduced a flat tax on income. At 13 percent, it's the lowest rate in Europe — designed to draw more Russians out of the "shadow economy" and honest taxpayers of them.
The results have been dramatic. Personal income tax revenue shot up nearly 47 percent last year, and tax revenue overall rose 50 percent, according to government figures. Early results from 2002 look even better.
"We expect the number of people filling out income tax forms to increase substantially," said Dmitri Mikulich, deputy head of the Tax Ministry's individual income tax department.
For a society with a long history of distrust in the government and a tradition of hiding cash at home, the taxpaying boom marks something of a revolution. But many analysts said it's far too early to declare complete victory.
"So far, so good," said Alexander Morozov, a senior economist at the World Bank in Moscow. "There are signs that more people are paying personal income tax, but the process of moving from shadow to light has only just started. There's a long way to go."
Small and medium-sized Russian businesses complain they still face a burdensome array of taxes that are impossible to fulfill.
The worst culprit, many say, is the "social tax" on salaries, of up to 35.6 percent, covering contributions to state pension and medical funds.
There's also a 5 percent sales tax, a 20 percent value added tax, a 5 percent advertising tax, a 2 percent property tax, a 1 percent road tax, plus a 24 percent tax on net profits after most other taxes, not to mention various registration fees.
"There's a sea of taxes," said Slava, 40, who owns a travel agency in Moscow and declined to give his last name. "What other country in the world tries to take so much money?"
Like many other business owners, Slava operates under a dual salary system. He pays his four employees in dollars, slipping them an envelope of cash every month, but keeps another set of records on his books, showing much lower wages in rubles — for the benefit of the tax inspector.
The gap between real and "official" salaries is striking. Slava's employees make between $100 and $300 a month, while on paper they earn a mere 500 rubles to 1300 rubles ($16 to $42).
Most tax inspectors suspect they're not being told the full story, but are willing to overlook their doubts for a "gift," like a bottle of liquor, Slava said with a shrug. Only through this sort of routine deception, he said, can he keep his business from going under.
"If the government makes it a 13 percent tax for business, just like for individuals, then I'm ready to pay it, but right now there's no way," he said. "You'd have to turn over all your profits."
Putin has promised to change that. Last month, he proposed a tax reform package for small business, that he called "no less revolutionary" than the flat tax on income.
The reforms would eliminate many taxes for small businesses, and give them the option of paying a 20 percent tax on profit or an 8 percent tax on revenues.
Morozov of the World Bank says it's important to make the taxpaying process less bureaucratic as well.
"The tax burden is not just the amount of tax, but the time and effort it takes to fill out all the forms," he said. "Unless it's simplified, it will be difficult for businesses to stay afloat."
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APRIL 15, 06:06 ET
Middle Class Get Biggest Tax Break
By CURT ANDERSON
AP Tax Writer
WASHINGTON (AP) — The wealthy and low-income people stand a better chance of being audited than the typical middle-class family, which is paying the lowest share of its income to the Treasury since 1957.
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Rich, poor and the middle class all are affected by one tax trend — the 17,000-page, 2.8 million-word tax code is more complex than ever. One estimate is that it now takes 28 hours and six minutes to tackle the Internal Revenue Service's 1040 form and do the necessary record keeping.
This year's filing deadline is midnight Monday for most of the country.
IRS data and reports from several tax research organizations depict a tax system that does not treat everyone equally but is, by far, the single biggest source of government paperwork and red tape.
"An abomination," Treasury Secretary Paul O'Neill calls it.
Consider IRS audits. Individuals making $100,000 or more and those making $25,000 or less are much more likely to face an audit than the tens of millions in between. High-income people tend to have more complicated returns that invite more audits; about 0.69 percent of all these returns were audited in 2001.
Those making under $25,000 usually have simple returns, yet about 0.40 percent were audited last year. That is almost twice the rate of taxpayers in the middle-income range and is largely attributable to the earned income tax credit, effectively a low-income refund program on which the IRS has focused attention to cut down on mistakes and fraud.
When audits related to that tax credit are not included, the rate for those earning under $25,000 drops to 0.15 percent, the IRS says.
For all taxpayers, the audit rate in 2001 was 0.58 percent, a slight rebound from the year before but far lower than in previous years. One reason for that is the 1998 IRS reform law that attempted to make the agency friendly to taxpayers.
"We don't see the unreasonable and harassing tactics we saw in the past," said Jennifer Prager Sodaro, an attorney who specializes in representing people accused of tax crimes.
The middle class is enjoying the lowest tax burden in decades, according to the Center on Budget and Policy Priorities, a government research group focused on the lower and middle classes.
Using government data, the center projects that a family of four making exactly the median income — $64,600 a year in 2001 — paid 6.8 percent of its earnings in federal income taxes. That compares with 10.3 percent during the 1980s for the same median-income family and is the lowest rate since 1957.
The decline was taking place before Congress passed President Bush's 10-year, $1.35 trillion tax cut, which further reduced the middle-class burden in the early years of that cut. In his Saturday radio address, Bush said taxpayers have already benefited from $57 billion in tax relief from that law and "the best news is that tax relief is continuing this year."
Average tax refunds this year are running about 12 percent above the year before, in part because the child tax credit targeted at middle- income people was raised from $500 to $600 by the tax relief legislation. The average refund through April 5 was $1,954.
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Taxpayers at all income groups must deal with an ever more complex tax system. The White House budget office estimates that in 2001, Americans spent 1.5 billion hours on federal paperwork — 80 percent of it dealing with tax forms.
Roger Harris, an enrolled agent licensed by the Treasury Department to practice before the IRS, said the 10,000-member National Association of Enrolled Agents is seeing more clients than ever.
H&R Block, the nation's largest tax preparation firm, recently reported a 4.4 percent increase in returns prepared, with fees running 12.1 percent above last year.
"More and more, taxpayers are opting to leave return preparation to the professionals because continued tax law complexity makes it difficult for them to prepare their tax returns with confidence," Harris said.
The single new line on the tax forms about how to account for last year's tax rebate checks of up to $600 has triggered more than 4 million errors, according to the IRS.
The National Taxpayers Union, a nonpartisan group that advocates lower taxes, calculated the 1040 form preparation and record keeping time, including commonly used schedules, of 28 hours, six minutes. That's an increase of more than an hour compared with last year and 40 percent more time-consuming than in 1997.
The 122 pages accompanying the standard 1040 form is triple the number in 1975.
"Sixty-five years ago its instructions were just two pages long," said David Keating, senior counselor at NTU.
Beginning Monday, the Bush administration planned to issue a series of reports on how to simplify the tax code. Many of these proposals might take years for Congress to implement and might encounter resistance if they force lawmakers to make unpleasant political choices among groups now getting tax breaks.
"Only fundamental tax reform might be a strong enough lifeline to save us from drowning in a sea of tax law," Keating said.
Yet advocates for replacing current tax law with a flat tax or a consumption tax have made little progress.
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On the Net:
Internal Revenue Service: http://www.irs.gov
National Taxpayers Union: http://www.ntu.org
Center on Budget and Policy Priorities: http://www.cbpp.org
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APRIL 15, 16:25 ET
Bush Promotes Tax Cut Permanency
By CURT ANDERSON
AP Tax Writer
WASHINGTON (AP) — Using Monday's tax filing deadline as a backdrop, President Bush and his Republican congressional allies sought to build support for legislation making permanent the 10-year, $1.35 trillion tax cut enacted last year.
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Because of an arcane Senate budget rule, the entire package of cuts will expire or "sunset" at the end of 2010 under current law. That could trigger tax chaos in 2011 — and would be seen as a big tax increase — when old income tax rates would go back into effect and the supposedly repealed estate tax would be resurrected full force.
The tax deadline also brought a new tax simplification proposal from Bush's Treasury Department aimed at removing confusion over the definition of a child for tax purposes, and a House hearing on the performance of the Internal Revenue Service.
Bush, appearing Monday at a General Mills plant in Cedar Rapids, Iowa, said the tax cut was "one of the reasons we're seeing encouraging signs in the economy." House leaders plan to bring the bill that would make the cuts permanent to a vote Thursday.
If the cuts were to expire because of "a quirk in the law," Bush said, "It's going to be hard to plan your future if you think all of a sudden these things get kicked in full time, and then go away. They need to make these tax cuts permanent."
Treasury Secretary Paul O'Neill, addressing the Economic Club of Grand Rapids, Mich., urged club members to lobby Congress in favor of the bill.
"Uncertainty stemming from the sunset clause will undermine investment, so the earlier we act on this, the better," O'Neill said.
On Capitol Hill, House Majority Leader Dick Armey, R-Texas, and other Republican lawmakers held what amounted to an hourlong televised infomercial on the bill. Using a town hall-style format, various "real people" were brought out to describe how different pieces of the tax cut had benefited them.
Meeting separately with reporters, House Ways and Means Committee Chairman Bill Thomas, R-Calif., said if the Democratic-run Senate ignores the bill as expected the House may pass additional versions or try to make individual pieces permanent — forcing Democrats to into difficult votes in an election year.
"If at first you don't succeed," Thomas said.
Democrats were unbowed. They contended that making the tax cuts permanent would eat away further at federal revenue needed to bolster Social Security and Medicare while providing few future benefits for most middle- and lower-income people. Congressional estimates put the price tag at $373 billion through 2012, but Democrats say the cost could top $4 trillion in the second decade.
"They know their new proposal cannot possibly help our economy now, since their bill would not do anything until 2011," said Rep. Charles Rangel of New York, ranking Democrat on the Ways and Means Committee. "They cannot argue that making these tax cuts permanent will help most Americans, since most of the benefits go to the very wealthy."
Thomas said the bill would permanently enact a provision protecting some taxpayers from the complex alternative minimum tax. It will also include several taxpayer protections and enhancements, including an extra 15-day filing deadline for people who file returns electronically. Those measures were defeated by the House last week because of controversy over a campaign finance issue, which won't be part of the new bill.
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Also Monday:
- The Treasury Department proposed that the five definitions of a
"qualifying child" now appearing in various sections of the tax code be
replaced to just one. O'Neill said this change, which could effect 53
million returns in 2003, is the first of a series of proposals the
administration will make the simplify tax laws.
"We are conducting a comprehensive review of the tax laws and their complexities, trying to find fixes for some of the biggest headaches," O'Neill said in Michigan.
- Thomas said the House hopes to act before adjournment this fall on legislation addressing a World Trade Organization decision that a U.S. corporate tax break is an illegal subsidy. At stake are potentially billions of dollars in retaliatory sanctions that the European Union could impose on U.S. goods.
- IRS Commissioner Charles Rossotti told a House Government Reform subcommittee that the agency needs more staff and resources to "narrow the gap" between the vast growth in high-income returns and the relatively low rates by which they are audited. Returns over $1 million, for example, have risen 259 percent between 1993 and 2001.
———
On the Net:
Congress: http://thomas.loc.gov
IRS: http://www.irs.gov
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APRIL 15, 19:27 ET
Cheney Pays $1.7 Million in Taxes
By CURT ANDERSON
AP Tax Writer
WASHINGTON (AP) — Vice President Dick Cheney paid federal income taxes of more than $1.7 million in 2001, on income of about $4.3 million, a far cry from the $36 million he earned the year before assuming the nation's second-highest elected office.
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A White House summary of Cheney's tax return and copies of his 1040 form released Monday also showed that he and his wife, Lynne, donated $79,275 to charity. That is less than 2 percent of their adjusted gross income and slightly below the $82,700 contributed to charities by President Bush on less than a quarter of the income.
The documents released a few hours before the midnight East Coast tax filing deadline show that Cheney earned $174,475 from his government salary and almost $1.6 million in bonus or deferred compensation from Halliburton Co., the Dallas-based energy services company Cheney headed until Aug. 16, 2000.
In addition, the income figure includes a $1.4 million cash bonus from Halliburton that Cheney received in January 2001 that was based on the company's calendar year 2000 results. Another $1.2 million came from Cheney's disposition of stock options and deferred compensation after he ended relationships with corporate boards on which he had served.
Cheney's wife, Lynne, also received unspecified lump sum payments from corporate boards she left, the documents said. Mrs. Cheney received a $50,000 advance — all of it donated to the American Red Cross ?from the Simon and Schuster publishing company for an upcoming book she is writing titled "America: A Patriotic Primer."
Cheney's much larger income last year came mainly from Halliburton stock he sold and options he exercised. Cheney sold some of that stock to avoid conflict-of-interest questions, sustaining a $1.9 million loss.
This year, the Cheneys reported $929,010 in long-term capital gains, including $310,839 from the sale of their former home in McLean, Va. They reported $136,446 in short-term capital gains, which were offset by capital losses from previous years. They also reported $48,483 in itemized deductions.
Last week, Bush and his wife, Laura, reported $811,100 in adjusted gross income for last year and paid $250,202 in federal income taxes, including $4,030 owed after his return was completed. That represented a 31 percent tax rate on the president's income, which included his salaries as president and a portion of his pay as governor of Texas for 2000.
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APRIL 15, 22:54 ET
D.C. Protesters Burn Copies of Taxes
By HEATHER GREENFIELD
Associated Press Writer
WASHINGTON (AP) — The District of Columbia's nonvoting House delegate was among residents of the nation's capital who burned federal tax forms to protest having to pay taxes without full congressional representation.
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The delegate, Eleanor Holmes Norton, can vote in House committees but not on the House floor. That makes Washington's 572,000 citizens the only Americans without a vote in Congress. Residents of Puerto Rico, Guam, the U.S. Virgin Island and other U.S. territories have no vote but pay no federal taxes.
Norton has introduced a bill to give the district voting rights, and Congress is expected to hold hearings this session. Under the "No Taxation without Representation Act," D.C. residents either would be excused from federal taxes or would have a vote in Congress.
"Taxation without representation" has become a slogan of the city, available to residents on their automobile license tags.
Around 250 protesters, including a high school brass band, gathered at rush hour in a small park in downtown Farragut Square on tax-payment day to protest what they consider the inequity of their tax situation. Because protesters were unable to obtain a permit to burn the documents in a metal can inside the park, the vessel was moved several feet away onto a section of a city street.
Norton told them IRS commissioner Charles Rossotti promised her during a hearing Monday that those who send protest letters with their tax returns will not be subjected to unfriendly audits.
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On the Net: D.C. Vote: http://www.dcvote.org
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APRIL 16, 00:37 ET
Anti-Tax Activist Arrested for Fraud
By CHELSEA J. CARTER
Associated Press Writer
SANTA ANA, Calif. (AP) — An anti-tax activist who once boasted she had never paid income taxes was arrested Monday for allegedly promoting bogus tax shelters and encouraging the filing of phony returns.
Six others also were charged in the alleged fraud scheme.
The arrest of Lynne Meredith, who headed up the anti-tax group We The People, came nearly a decade after she first began publicly lobbying against income taxes.
In a federal indictment, Meredith was accused of encouraging people to open bank accounts with phony taxpayer identification numbers, filing fraudulent tax returns and encouraging tax payers not to file returns.
The indictment also alleges Meredith, 52, earned more than $6.2 million between 1994 and 1999 but didn't file a federal income tax return.
Meredith has written two books and given hundreds of seminars instructing people how to "legally stop paying taxes." Her books advise readers to file tax returns that accurately report income but request a refund of all taxes paid, or create tax shelter trusts to protect income and assets from taxes.
She sold the trusts through her company, "Sovereignty Pure Trusts."
The Internal Revenue Service said Meredith's actions caused taxpayers to file fraudulent returns, some of which sought as much as $21,000 in refunds. None of the refunds were paid, records show.
"Meredith misled numerous people into believing that the tax shelters she was selling would legally keep them from having to pay income taxes. Instead, many of these people now find themselves owing back taxes, penalties and interest," said Michael S. Kochmanski of the Los Angeles office of IRS criminal investigations.
The others charged with one count of conspiracy and 11 counts of mail fraud were trust salespersons employed by Meredith.
A message left Monday at the Huntington Beach office of We The People was not immediately returned.
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APRIL 16, 03:47 ET
Bush Talks About Extending Tax Cut
By CURT ANDERSON
AP Tax Writer
WASHINGTON (AP) — The annual tax filing deadline formed the backdrop of a new effort by President Bush and Republican congressional leaders to make permanent the 10-year, $1.35 trillion tax cut enacted last year.
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Under current law, the entire package will expire or "sunset" at the end of 2010, because of an arcane Senate rule that was invoked partly to control the long-term budget impact of the cuts. Bush said Monday that would mean a return to old, higher income tax rates and resurrection of the supposedly repealed estate tax.
"It's going to be hard to plan the future, if you think all of a sudden these things get kicked in full-time and then go away," the president said in remarks at a General Mills plant in Cedar Rapids, Iowa. "They need to make these tax cuts permanent."
House leaders plan to bring the bill that would make the cuts permanent to a vote Thursday. Senate Democrats, however, are cool to the idea and the legislation appears unlikely to win final approval this year.
Treasury Secretary Paul O'Neill, addressing the Economic Club of Grand Rapids, Mich., urged club members to lobby Congress in favor of the bill.
"Uncertainty stemming from the sunset clause will undermine investment, so the earlier we act on this, the better," O'Neill said.
On Capitol Hill, House Majority Leader Dick Armey, R-Texas, and other Republican lawmakers held what amounted to an hourlong televised infomercial on the bill. Using a town hall-style format, various "real people" were brought out to describe how different pieces of the tax cut had benefited them.
Meeting separately with reporters, House Ways and Means Committee Chairman Bill Thomas, R-Calif., said if the Democratic-run Senate ignores the bill as expected the House may pass additional versions or try to make individual pieces permanent — forcing Democrats to into difficult votes in an election year.
"If at first you don't succeed," Thomas said.
Democrats were unbowed. They contended that making the tax cuts permanent would eat away further at federal revenue needed to bolster Social Security and Medicare while providing few future benefits for most middle- and lower-income people. Congressional estimates put the price tag at $373 billion through 2012, but Democrats say the cost could top $4 trillion in the second decade.
"They know their new proposal cannot possibly help our economy now, since their bill would not do anything until 2011," said Rep. Charles Rangel of New York, ranking Democrat on the Ways and Means Committee. "They cannot argue that making these tax cuts permanent will help most Americans, since most of the benefits go to the very wealthy."
Thomas said the bill would permanently enact a provision protecting some taxpayers from the complex alternative minimum tax. It will also include several taxpayer protections and enhancements, including an extra 15-day filing deadline for people who file returns electronically. Those measures were defeated by the House last week because of controversy over a campaign finance issue, which won't be part of the new bill.
Also Monday:
- The Treasury Department proposed that the five definitions of a
"qualifying child" now appearing in various sections of the tax code be
replaced to just one. O'Neill said this change, which could effect 53
million returns in 2003, is the first of a series of proposals the
administration will make the simplify tax laws.
"We are conducting a comprehensive review of the tax laws and their complexities, trying to find fixes for some of the biggest headaches," O'Neill said in Michigan.
- Thomas said the House hopes to act before adjournment this fall on legislation addressing a World Trade Organization decision that a U.S. corporate tax break is an illegal subsidy. At stake are potentially billions of dollars in retaliatory sanctions that the European Union could impose on U.S. goods.
- IRS Commissioner Charles Rossotti told a House Government Reform subcommittee that the agency needs more staff and resources to "narrow the gap" between the vast growth in high-income returns and the relatively low rates by which they are audited. Returns over $1 million, for example, have risen 259 percent between 1993 and 2001.
———
On the Net:
Congress: http://thomas.loc.gov
IRS: http://www.irs.gov
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APRIL 16, 07:20 ET
Clock Runs Out on Tax Day
By CHAKA FERGUSON
Associated Press Writer
NEW YORK (AP) — Procrastinators scrambled to finish their tax returns and waited in long lines at post offices as the clock ran out on tax- filing day.
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A few hours before the midnight Monday deadline, Althea Dease, 32, was outside the main Cincinnati post office with her 6-year-old son Alex waiting for her husband to pick her up after mailing her forms.
"We usually wait until late because we have to pay," she said. "This year, we are actually getting something back, but we didn't know it until just recently."
Temple University student Andrew Basenfelder asked frantically for a calculator as he worked on his return at a table in the center of a Philadelphia post office.
"Basically, I just put it off," he said.
New York City's central post office in Manhattan took on a carnival atmosphere as late filers mingled with police officers, protesters and partially clothed actors promoting a nude musical revue in Greenwich Village.
Dozens of activists declaimed corporate tax cuts and the U.S. war effort in Afghanistan while pitchmen handed out free samples of soft drinks and other products.
Breakdancers and a man in a Santa Claus costume promoted a radio station outside a Philadelphia post office. Another man dressed as "Star Wars" villain Darth Vader protested military spending by waving a light saber at passers-by. A 64-year-old woman held a sign that read "Raging Grannies Against Corporate Welfare."
"I didn't know it was going to be this crazy," said Rita Wissert, 27, who waited for her boyfriend outside the post office. "This is insane."
In Las Vegas, casino food server Toni Mitchell joined tax resister and author Irwin Schiff at a protest on the steps of the federal courthouse. She brought her bulldog Emeril, who wore a T-shirt bearing the words "Tax Freedom ... Irwin Schiff."
"Americans are uninformed about paying income tax," said Mitchell, 29.
In Cincinnati, a radio station invited people outside the main post office to take out their stress on a vehicle nicknamed "the Tax Dodge." They could hit the car with a sledgehammer for $1, with the money going to charity.
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The White House budget office estimates that Americans spent 1.5 billion hours on federal paperwork last year — 80 percent of it dealing with tax forms. The 122 pages with the standard 1040 form is triple the number in 1975.
The National Taxpayers Union said keeping records and then preparing the 1040 form with common schedules takes an average of 28 hours, six minutes — an increase of more than an hour over last year and 40 percent more time-consuming than in 1997.
Fresh from root canal surgery, part-time college student Samuel Gordon held his jaw as he worked his way through a pile of tax papers piled before him at a Philadelphia post office.
"My lips still feel numb," Gordon said. "And I don't like taxes."
In New York, former Parks & Recreation Commissioner Henry Stern combed through his returns as he sat on a bench in his shirt sleeves outside an Internal Revenue Service building.
"You walk away with a great feeling of relief," he said after handing in his forms. "You're relieved of your money and you're relieved that your obligation is fulfilled, at least for this year."
———
On the Net:
Internal Revenue Service: http://www.irs.gov
National Taxpayers Union: http://www.ntu.org
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APRIL 16, 13:58 ET
Congress Debates Cutting Beer Tax
By DANNY FREEDMAN
Associated Press Writer
WASHINGTON (AP) — Cutting the tax on beer in half could leave Americans with "a $1.7 billion hangover" in trying to replenish lost federal funds, opponents of a bill being considered in Congress said Tuesday.
Millie I. Webb, president of Mothers Against Drunk Driving, said a reduction in the tax of $18 per barrel — that's about 33 cents per six- pack — would also have "dire and deadly consequences for adults and youth with respect to drunk driving, underage drinking and alcohol problems in general."
Rep. Phil English, R-Pa., introduced the measure last year. "It's an unfair tax that targets lower- to middle-class Americans," said Jennifer Hall, his spokeswoman. She said that two-thirds of the beer consumed in the country is bought by people earning less than $45,000 per year.
The bill's opponents, speaking at a Capitol Hill news conference Tuesday, said the last beer tax increase in 1991 was in part responsible for saving the lives of more than 600 minors every year.
The proposed tax cut, coming at a time when the federal government is again running budget deficits, would leave taxpayers with "a $1.7 billion hangover trying to plug the revenue gap this bill triggers," said Art Jaeger, associate direct of the Consumer Federation of America.
Hall said the campaign to cut the tax has lost momentum as the nation deals with a weak economy and the war on terrorism.
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The bill is H.R. 1305.
On the Net:
Congress: http://thomas.loc.gov
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APRIL 16, 17:01 ET
Daschle Balks at Tax Cut's Future
By CURT ANDERSON
AP Tax Writer
WASHINGTON (AP) — Despite President Bush's urgings, the Democratic-run Senate will not consider legislation to make permanent last year's $1.35 trillion tax cut, Majority Leader Tom Daschle said Tuesday.
Daschle, D-S.D., issued his strongest statement yet against the bill, which is expected to pass the House later this week. Bush on Monday used an Iowa appearance to renew his call for Congress to act, but Daschle flatly ruled it out.
"We will also never bring up the permanent tax cut the president is advocating," Daschle told reporters. "It's bad policy, it's wrong and it compounds the budget disaster we are now facing."
Democrats say the package of tax cuts, which expires at the end of 2010, is largely to blame for the loss of what had been huge projected budget surpluses. They also contend that its huge costs in its second decade would consume money needed to shore up Social Security and Medicare.
"Keep in mind, every single dollar of this tax cut will be taken from the Social Security trust fund," Daschle said.
Congressional estimates peg the cost of making the tax cut permanent at $373 billion over the decade ending in 2012. Democrats say the true cost, counting higher interest costs, would approach $4 trillion during the decade after 2012.
Republicans say failure to extend the cuts would trigger a huge income tax increase in 2011 on virtually every American, cut the child tax credit in half, revive the supposedly abolished estate tax and reduce generous tax benefits for retirement programs and education savings plans.
GOP leaders plan to remind voters about that at every opportunity in this year's congressional election campaigns.
"Those who stand in the way of tax relief, economic recovery and jobs will be held accountable by voters come November," said Marc Racicot, chairman of the Republican National Committee.
The tax cut expires on Dec. 31, 2010, because of an obscure Senate budget rule invoked partly so that it would fit under the $1.35 trillion limit set by last year's congressional budget. Although they could wait a few years, Bush and his GOP allies say making the package permanent now would bolster investment and make estate planning less uncertain.
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On the Net:
Congress: http://thomas.loc.gov
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APRIL 16, 17:52 ET
Tribune, IRS Dispute Back Taxes
CHICAGO (AP) — Two business deals made by Times Mirror Co. before it was bought by the Tribune Co. may cost Tribune hundreds of millions of dollars in tax liability.
According to Tribune's annual filing with the Securities and Exchange Commission, called a 10-K, the Internal Revenue Service contends it is owed a total of at least $760 million in back taxes, penalties and fines as a result of the transactions made by the Los Angeles-based publisher in 1998.
Because Tribune inherited Times Mirror's tax burden when it bought the company for about $8 billion in 2000, the IRS wants Tribune to pay.
The dispute stems from two business transactions that Times Mirror characterized as tax-free reorganizations, according to the 10-K. Times Mirror "disposed of" two subsidiaries in separate tax-free reorganizations, according to the filing.
The IRS saw the transactions differently, concluding that taxes should have been paid on them, according to the filing.
In the filing, Tribune said the IRS subsequently "issued a notice of proposed adjustment in 2001 to increase 1998 taxable income by an estimated $1.6 billion."
That taxable income translates to federal and state liability of $600 million plus interest, according to the filing. As of the end of last year, according to the 10-K, the interest on the proposed taxes would be about $160 million. Tribune also said in the filing the IRS had assessed tax penalties.
Times Mirror did set aside $180 million as a tax reserve, according to the filing. But the dispute suggests the IRS does not believe that is nearly enough.
"The company will protest the proposed IRS adjustment and related tax penalties and intends to vigorously defend its position on the matter," Tribune said in its report.
Tribune spokesman Gary Weitman said the company would not comment beyond what is in the 10-K report because of the pending IRS case. An IRS spokeswoman, citing agency policy, also declined to comment.
Tribune Co. owns the Chicago Tribune, Los Angeles Times, several other newspapers and television stations and more than 50 Web sites.
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APRIL 16, 19:45 ET
House Considers Clergy Tax Breaks
By CURT ANDERSON
AP Tax Writer
WASHINGTON (AP) — Since 1921, ministers, priests and rabbis have received a tax break for the costs of their housing. Members of Congress acted Tuesday to block a federal court from invalidating that exemption.
Lawmakers are seeking to protect the so-called parsonage exemption before the 9th U.S. Circuit Court of Appeals in San Francisco has an opportunity to decide whether the tax break passes constitutional muster.
Legislation that would clarify the exemption and pre-empt that case passed the House 408-0, moving on to the Senate.
Rep. James Ramstad, R-Minn., said loss of the exemption would cost clergy members $2.3 billion over the next five years.
"We cannot allow this important tax provision to fall," Ramstad said.
Rep. Earl Pomeroy, D-N.D., said the exemption was particularly important in rural areas where churches, synagogues, mosques and temples would be less able to compensate for its loss, making it harder to attract clergy.
"A clergy's home is not just his shelter, but a central meeting place for all members of the congregation," Pomeroy said.
Echoed by other sponsors, Ramstad accused the court of "judicial activism at its worst" because the judges were initially asked by the Internal Revenue Service only to determine whether a Los Angeles-area Baptist minister, the Rev. Richard Warren, had claimed too large a tax deduction for his home.
The IRS, which appealed a lower court decision it lost, contended that Warren was due only $59,479 under the "fair rental value" principle instead of the $79,999 tax deduction he had claimed for a home he purchased for $360,000 in 1992.
Instead of ruling on that narrow issue, the 9th Circuit judge asked a University of Southern California law professor to file a brief in the case by May 3 addressing whether the exemption violates the separation of church and state principle. That professor, Erwin Chemerinsky, has said the exemption amounts to "government subsidizing religion."
Those questions would become moot if Ramstad's bill clears the Senate and is signed into law by President Bush. The legislation actually puts into law the more restrictive IRS practice of allowing clergy to deduct the "fair rental value" of their homes.
In practice, the exemption permits a clergy member to deduct from taxable income the portion of church earnings that are attributed to housing costs.
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The bill is H.R. 4156.
On the Net:
Congress: http://thomas.loc.gov
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April 17, 2002
Tax Report
by Tom Herman
Staff Reporter of The Wall Street Journal
Forgot to File Your Tax Return?
Here's How to Amend Your Error
"I am scared to death of the IRS and I'm in trouble," a reader from California writes. Having failed to file federal income taxes since 1993, he worries he may owe money and wants to know the safest way to come clean. "I don't know how to get back into the system," he laments.
Millions of Americans are still reeling from filing their taxes this week. But many aren't: One of the nation's dirty little secrets is how many people don't bother to file a tax return at all. Earlier this year, the Internal Revenue Service said that for 1998 alone, at least 1.7 million people never bothered filing a return -- and those are just the ones the IRS says were owed refunds. In fact, the agency was holding more than $2.3 billion in unclaimed refunds for those people. Nobody knows precisely how many Americans haven't filed altogether.
Many people don't file thanks to a misconception that because they're entitled to refunds, it shouldn't matter how long they wait to reclaim their own money. While it's true there is no penalty for filing late if the government owes you money, there is a time limit to avoid having the Treasury Department pocket your refund: You generally have to file within three years after the date your return was due.
In other cases, delinquent filers are eager to come in from the cold and pay what they owe but are frozen by fear. Some figure it is safer to do nothing and pray that the IRS's antiquated computers won't catch them. "They let April 15 go by one year, and they get worried about how to get back into the system, so the next year goes by," says Dale F. Hart, an IRS deputy commissioner.
Even people who file on time, of course, often have to square things with the IRS. It's usually easy to make amends: Just file Form 1040X. Contrary to popular myth, filing an amended return typically won't increase your chances of getting audited, IRS officials say. But don't dally. Generally, you have to file your claim for a credit or refund within three years after the date you filed your original return (or within two years after the date you paid the tax, whichever is later). Record numbers of people are expected to file amended returns this year.
State tax agencies are often more lenient. Many states -- trying to boost tax revenues -- offer "amnesties" for short periods, usually a few months. In a typical amnesty, the state agrees to waive penalties for those who voluntarily pay back tax debts. Some states even waive interest. One big caveat: "If you come clean with the states and not the feds, you run the risk of a criminal problem with the IRS," says John J. Tigue Jr., a lawyer at Morvillo Abramowitz Grand Iason & Silberberg in New York.
For anyone due a refund, stop procrastinating. You can get prior-year forms on the IRS Web site (www.irs.gov). The deadline for claiming 1998 refunds expired this week.
For those who owe the federal government money, the question of how to come clean can be far more complex. The answer can hinge on many factors, such as how much money is owed, how long since the taxpayer last filed, and whether the money in question comes from legal sources. If you have any doubts, hire a lawyer. In some cases, lawyers negotiate with the IRS on general terms before disclosing a client's identity. The IRS usually is more lenient with people who turn themselves in on a voluntary basis, rather than getting caught in the act.
But voluntary really means voluntary, and there can be strong disagreements about how to define it. IRS officials emphasize it's not really voluntary if you turn yourself in because you know a former business partner or ex-spouse is heading to the nearest IRS office to rat on you. In IRS parlance, that's known as a "triggering event."
A separate approach to coming clean is the "brown-envelope method." That calls for simply mailing a delinquent return to the closest IRS service center with taxes and interest included and hoping for the best.
Many people who don't file have dropped out because they have run into severe financial troubles and can't afford to pay. That's not smart. Instead, consider arranging to pay on an installment plan. Or if you have no hope of ever being able to repay, consider asking the IRS to compromise on the amount due through its "offer-in-compromise" program. For details on this and what to do when you owe taxes, see IRS Publication 594, available on the IRS Web site.
One problem with this compromise approach is the IRS program is wracked by exceedingly long delays. In many cases, it takes the IRS a year or more merely to reply to taxpayer offers. Senior IRS officials have called on the agency to overhaul the program and cut down on waiting time. But they acknowledge it will take years to make significant progress.
Don't use this as a reason to sit back and do nothing. A California criminal defense lawyer who earned more than $4 million in 1994 recently pleaded guilty in U.S. district court in Los Angeles to a charge of willfully failing to file his return for that year. David E. Kenner, 60 years old, is scheduled to be sentenced later this month. He faces a maximum penalty of one year in federal prison and a fine of $100,000. He may also be ordered to pay additional taxes due, says a spokesman for the U.S. attorney in Los Angeles.
Tax Return Scorecard
Overall, more Americans are paying their taxes than last year. As of April 12, the IRS had received about 90.6 million individual income-tax returns -- up 2.8% from April 13 of last year. Also as of April 12, the IRS had processed about 79.5 million of this year's returns, up 6%. Tax refunds are continuing to run far ahead of last year. Total refunds approved this year rose more than 18% to $136.81 billion. The number of refunds rose 5% to nearly 70.3 million. The average refund rose to $1,947 from $1,728. Economists monitor refund flows carefully for clues to consumer spending trends.
Briefs
IRS Commissioner Charles Rossotti, asked recently if he prepares his own return, replied: "No. I haven't done my own for 25 years -- no, for about 30 years."
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APRIL 17, 14:04 ET
Lawmakers Tackle Corp. Tax Breaks
By CURT ANDERSON
AP Tax Writer
WASHINGTON (AP) — Suggesting Congress can't do the job itself, two lawmakers proposed Wednesday that a separate commission be created to weed out billions of dollars in corporate tax breaks and subsidies.
House Democratic leader Dick Gephardt, D-Mo., and Sen. John McCain, R- Ariz., said the commission would be similar to those that successfully tackled the politically sensitive topic of closing military bases. Congressional debate and amendments on its product would be limited.
Without such a panel, McCain said, "we know that the influence of special interests will prevent that effort from succeeding. ... We need a credible process to identify corporate pork and eliminate it."
Gephardt and McCain said passage of a bill creating the commission would build on the recent success of campaign reform legislation, which among other things will ban donations of unregulated soft money to national political parties after this year's elections.
"This is the first real step toward tax reform," Gephardt said.
Robert McIntyre, president of the labor-funded Citizens for Tax Justice, estimated that American taxpayers would foot the bill for about $170 billion in each of the next two years for tax provisions and programs that benefit corporations.
At the same time, McIntyre said 10 major profitable companies, including Microsoft, IBM, General Electric, Enron, Navistar and Colgate-Palmolive, benefited from a combined $50 billion in tax breaks from 1996 to 2000 — driving their effective U.S. tax rates down to 8.9 percent. The maximum corporate income tax rate is 35 percent.
"We now have a tax code that is more loopholes than tax," McIntyre said.
The legislation by McCain and Gephardt would authorize a nine-member commission, with members chosen by the president and congressional leaders. The panel would submit its report to the president, who could approve or reject it entirely or resubmit the report to the panel for modifications.
Once the recommendations get presidential approval, Congress would have four months to consider it and key committees could make amendments. After that, floor debate would be limited to 30 hours in each house and amendments would be more restrictive.
McCain said he was under no illusions that the process would be easy, noting that just about every tax break and government subsidy has its defenders.
"It's in the eye of the beholder," McCain said. "That's why we need a commission to separate this out for us."
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On the Net:
Congress: http://thomas.loc.gov
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APRIL 17, 14:40 ET
Income Taxes Help U.S. Treasury
By LEIGH STROPE
Associated Press Writer
WASHINGTON (AP) — A flood of income tax payments has helped ease pressure on the national debt ceiling and allowed the Treasury Department to begin restoring money shifted from pension accounts to avert default, officials said Wednesday.
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Still, the Bush administration continued to press a deadlocked Congress to extend the government's authority to borrow because the $5.95 trillion debt limit could be reached this summer.
"Why can't we stop this madness," Treasury Secretary Paul O'Neill said at a hearing of a House Appropriations subcommittee. "We do not have a choice" but to raise the borrowing limit.
His testimony echoed past Treasury secretaries who have bemoaned how the process invariably gets entangled in politics and delayed. The administration wants a $750 billion increase.
"Why we torture each other for six months is beyond me," O'Neill said.
O'Neill this month moved federal retirement funds into a noninterest- bearing account to free room for more borrowing. The juggling of federal retirement accounts has been done before in standoffs with Congress and has no effect on employees' retirement funds.
The money was moved back Tuesday and interest paid after income tax payments began flowing into Treasury coffers after Monday's tax deadline.
Without the shifting of funds, the government technically would have been in default on the debt, something that never has happened before. That would cast a cloud over U.S. securities, considered the world's safest investment. It also would force the government to pay billions of dollars in higher interest payments on the national debt in the future.
Treasury officials warned that the accounting maneuvers taken to stay below the debt limit would be more difficult when the government approaches the ceiling again, possibly in June.
"You're going to have to raise the debt ceiling or you're going to have to find a new Treasury secretary, because I'm not going to go to jail because you failed to act and I have to take some extraordinary action that is unconstitutional. I'm not going to do that," O'Neill told Congress.
A $750 billion increase by Congress should keep the government below the limit until September 2003.
The debt limit issue is more about politics than economics.
Some Democrats want to use the issue in November's election to help drive home their message that President Bush's $1.35 trillion, 10-year tax cut last year was too generous and has pushed the country back into deficit spending.
Republicans who control the House have lacked the votes to pass legislation increasing the debt limit because of opposition from conservatives, who are leery that it will lead to more spending.
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APRIL 17, 14:42 ET
How to Profit From Tax Refunds
By EILEEN ALT POWELL
AP Business Writer
NEW YORK (AP) — The Internal Revenue Service says some 93 million Americans — roughly seven out of every 10 tax filers — are getting a refund on their federal income taxes this year, and that refund will average $1,954.
Many will be tempted to spend it all, and quickly. But financial advisers say there are a lot of alternative uses that will provide longer-term financial rewards.
"It's fun to get a tax refund, and people should use some of it for something special, like a nice dinner out, an upgrade for their computer or maybe a new spring hat," said consumer expert Nancy Dunnan, author of "How to Invest $50 to $5,000."
"But it's also an opportunity to pay down debt or to boost savings."
Greg McBride, a financial analyst at Bankrate.com, suggested that one of the most profitable things people can do with their refunds is to pay down credit card debt.
"If you pay $1,900 on a card that charges 13 percent interest, you'll save $247 in interest this year," he said. "That's money well spent."
Another possibility, McBride said, would be "starting that emergency fund we all talk about but never quite get around to."
Most experts say an emergency fund should be big enough to cover three to six months of living expenses if you lose your job, have medical problems or face other unexpected setbacks.
"The money should be accessible, but shouldn't be something you're tapping all the time because that defeats the purpose," McBride said.
He suggests savers consider putting their money in high-yield money market deposit accounts, currently paying about 2.6 percent interest, or money market funds.
Although savers shouldn't raid their emergency funds for non- emergencies, they can "leverage" the money, McBride suggested.
"Think about increasing the deductible on your auto insurance by the amount you have saved, and that will cut the cost of your insurance," McBride said.
Liz Miller, a senior vice president and investment officer at UMB Bank in Kansas City, Mo., suggests families consider investing tax refunds for their retirement.
"An IRA — Individual Retirement Account — is a good idea for everyone," she said.
Employees who don't have retirement plans at work can invest up to $3,000 a year in traditional IRAs. Those with 401(k) and other employer-sponsored plans can look at supplementing them with Roth IRAs. People 50 and older can put in an additional $500 under a special "catch-up" provision.
IRA accounts can be set up with banks and savings institutions as well as with brokerage houses.
Miller believes good investment options now include equity funds that invest in small companies. "Small-cap equity funds do best in the early stages of economic recoveries, which is where we are now," she said.
All the experts said that while it might feel good to get a big refund, it's not necessarily a winning strategy.
"A lot of people view a tax refund as a gift," Miller said. "You have to change that mindset. It's your money, and a big refund means you gave it to the government as an interest-free loan."
Dunnan agreed, pointing out that "in theory, you shouldn't be getting a refund if your withholding is correct, or if your estimated quarterly payments are at the right level."
If you don't want such a big refund next year, ask your employer for a new W-4 form and increase the number of exemptions you claim. IRS Publication 919, available on the IRS Web site (www.irs.gov) or by calling the IRS hot line, (800) 829-3676, can help you do the calculations.
And obviously if you ended up owing a lot of taxes this year, you might also consider revising your W-4 form so the amount withheld covers your taxes next April.
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On the Net:
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APRIL 17, 15:21 ET
Britain Takes Gamble With Tax Hike
By ED JOHNSON
Associated Press Writer
LONDON (AP) — Prime Minister Tony Blair's government took a major political gamble Wednesday, announcing a significant tax increase to boost the country's struggling free health service.
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"There is no free way of increasing health service spending," Chancellor Gordon Brown, the treasury chief, told the House of Commons. "We now have the best chance in a generation to secure the NHS (National Health Service), not just for a year or two but for the long term," he said.
In his annual budget announcement, Brown said social security tax contributions would increase 1 percent, raising an extra $8.7 billion in its first year. The increase means employees will pay 11 percent of their salary, while employers will pay 12.8 percent on what they pay their workers.
He said spending on the free health service would increase by 43 percent over the next five years, from the current $93.5 billion to $151 billion in 2007-08.
Analysts say the budget is a watershed for Blair's Labor Party, which studiously avoided increasing personal taxes in its first term.
The move could crystallize support for Labor, which won two landslide election victories on campaign promises of improving the health service and other public services.
But some analysts predict the tax increase could cost the government vital middle class and swing votes at the next general election, expected by 2006, and see the main opposition Conservative Party gain more seats in Parliament.
Conservative leader Iain Duncan Smith accused Labor of reneging on its election manifesto commitment not to raise income tax. He said the rise in social security contributions, which are paid from the payroll, was the equivalent.
"You've broken your promise to the British people," he told Brown, to the jeers of Labor lawmakers. "All he is offering is more of the same. More talk, more tax but it will not save the NHS from failure."
The government is under growing criticism for its handling of the free health service. Patients complain of overcrowded hospitals, long waits for surgery and a lack of specialist doctors and nurses.
A report released by the Treasury on Wednesday said Britain must devote "a significantly larger share" of its national income to the health service over the next 20 years in order to catch up with standards of health care in other countries.
In his speech Wednesday, Brown said the new money must be "matched with modernization" and announced a new regime of independent audits and inspections for the unwieldy and bureaucratic health service.
Health unions applauded the extra cash Wednesday. Unison general secretary Dave Prentis said Brown had given the NHS "the kiss of life."
Labor has battled to transform its old reputation as a high-taxing and spending party — an image that cost it successive elections in the 1980s and much of the 1990s.
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APRIL 17, 17:09 ET
O'Neill Signs Tax Haven Agreement
By JEANNINE AVERSA
Associated Press Writer
WASHINGTON (AP) — Treasury Secretary Paul O'Neill on Wednesday signed an information-sharing agreement with the Netherlands Antilles to help U.S. authorities crack down on the use of offshore tax havens to hide illegal money.
It marks the Bush administration's latest effort to open financial institutions to greater scrutiny to prevent tax evasion.
The Netherlands Antilles has previously pledged to work against harmful tax practices, allowing the jurisdiction to be dropped from a list of tax havens identified by the Paris-based Organization for Economic Cooperation and Development.
The Bush administration has signed similar information-sharing agreements with the British Virgin Islands, the Bahamas, Antigua and Barbuda and the Cayman Islands, which long have been considered tax havens.
Wednesday's agreement is designed to allow the Internal Revenue Service to pierce the secrecy of accounts at financial institutions in the Netherlands Antilles, paving the way for audits that could uncover tax evasion or money-laundering activities.
"Access to needed information is vital to our efforts to ensure enforcement of our tax laws," O'Neill said.
Led by O'Neill, the Bush administration has shifted the U.S. focus in dealing with tax havens away from international efforts to overhaul tax structures and toward negotiated agreements that allow easier U.S. pursuit of suspected cheaters.
Previous administrations had strongly supported the OECD's efforts to curb the use of offshore accounts to evade taxes, but O'Neill and congressional Republicans have complained that the OECD approach was an attempt to punish countries with low taxes.
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On the Net:
Organization for Economic Cooperation and Development: http://www.oecd.org
Treasury Department: http://www.treasury.gov
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APRIL 17, 19:05 ET
Two Men Sentenced in Tax Fraud Case
LITTLE ROCK, Ark. (AP) — Two tax consultants accused of telling clients to deduct cat care as "rodent control" and to call a German shepherd a "mobile security system" were sent to prison Wednesday.
Donald Stuart Fletcher, 67, of La Honda, Calif., was convicted last year of conspiracy and other charges. U.S. District Judge Stephen Reasoner sentenced him to nearly six years in prison, fined him $50,000 and ordered him to repay the government $167,761.
He is already serving a 6 1/2 -year prison sentence handed down in Montana.
"Any person of average intelligence should have known there was something not right about this," the judge said.
William Spencer Webber, 54, of Santa Cruz, Calif., pleaded guilty in the case and testified against Fletcher. The judge sentenced him to a year in prison on the Arkansas and Montana charges and fined him $5,000.
"I'm an old hippie. Money has never been of value to me," Webber said in court, on the verge of tears.
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APRIL 18, 15:46 ET
OECD Lists Uncooperative Tax Havens
By MARIJA POTKONJAK
Associated Press Writer
PARIS (AP) — The principality of Monaco is one of seven tax havens refusing to cooperate with a major international effort to end harmful tax practices and tax evasion, the Organization for Economic Cooperation and Development said Thursday.
Monaco, Andorra, Liberia, Liechtenstein, the Marshall Islands, Nauru and Vanuatu have failed to agree to open up their tax and regulatory systems to more scrutiny, the Paris-based OECD said.
"We hope they will review their decision and we are prepared to continue our dialogue with them," said Seiichi Kondo, OECD deputy secretary-general.
"Uncooperative tax havens represent a threat not only to the tax systems of developed and developing countries but also to the integrity of the international financial system," Kondo said.
Gabriel Makhlouf, chairman of the agency's Fiscal Affairs Committee, would not comment on the seven jurisdictions individually but said that by identifying them, "the framework of coordinated defensive measures" could be developed.
In 2000, the OECD released a list of 35 financial centers considered to be uncooperative tax havens.
By Thursday, 28 had been removed from the list for agreeing to greater openness in their tax and regulatory systems or for already having sufficient systems in place.
In Vaduz, Liechtenstein's Prime Minister Otmar Hasler said the principality was "always ready for fair cooperation" with the OECD. But he denied that banking secrecy and tax haven status encourage money laundering or the financing of international terrorism.
Liechtenstein authorities cooperated with an international investigation into money stashed abroad by Nigeria's late dictator, Gen. Sani Abacha. Earlier this week, they said they would transfer $200 million of Abacha's money back to Nigeria after a settlement between Nigerian authorities and the Abacha family. A total $1 billion is being returned by Liechtenstein, Switzerland, Luxembourg, Britain and Jersey.
The OECD said its effort is aimed at cracking down on tax evasion but also may help counter money laundering and the financing of terrorism.
Money laundering involves the movement of profits from drug or arms trafficking, political corruption, prostitution and other illicit activities through a series of accounts or businesses to disguise them as proceeds of legitimate business.
Earlier this month, the French Parliament released a report saying that money laundering was becoming increasingly common in the French Riviera, mostly the work of Russian and Italian organized crime groups that take advantage of a weak justice system.
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APRIL 19, 03:35 ET
Permanent Tax Bill a Political Issue
By CURT ANDERSON
AP Tax Writer
WASHINGTON (AP) — The House vote to make President Bush's big tax cut permanent probably will have more impact on the congressional political landscape than on American taxpayers.
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Republicans and Democrats say the 229-198 vote Thursday on a bill that would prevent the cuts from expiring after 2010 will be a key issue in this year's campaigns, particularly because Senate Majority Leader Tom Daschle, D-S.D., is pledging to block it from coming up.
Bush sought to increase the pressure on Democrats, saying it was up to the Senate to give Americans lower tax rates "they can count on to plan and invest for the future." Senate failure to act "would penalize every American who pays federal income taxes," the president said in a written statement.
Democrats viewed the vote as a referendum on the cost of tax cuts versus protecting Social Security, a leading message in their attempt to recapture control of the House.
"Let me assure you that this vote is going to be the subject of a lot of campaigns for the House this fall," said Democratic leader Dick Gephardt, D-Mo.
Republicans say making the $1.35 trillion tax cut permanent would give taxpayers greater certainty, clear up estate planning and bolster the economy by removing the threat the of a huge tax increase if the package expires as scheduled after Dec. 31, 2010.
Income tax rates would rise to pre-2001 levels, the estate tax would rise again after being repealed for only one year, the child tax credit would be halved and generous benefits for retirement savings and education would evaporate.
"Does that make common sense?" said House Speaker Dennis Hastert, R- Ill. "We don't have to tie the American people down to a now you see it, now you don't promise."
Nine Democrats voted in favor of the bill, compared with 28 who supported the final tax cut measure last year. Only one Republican, Rep. Connie Morella of Maryland, was opposed.
Democrats contend the tax cut is to blame for draining much of the government's projected budget surplus. They say the $374 billion cost of extending the package through 2012 would have to be financed by Social Security, in which a large surplus still exists.
Although the Social Security money must be repaid and the transfer would have no impact on the level of retiree benefits, the program remains a potent political weapon — particularly among older voters.
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Democrats also say the tax cut would cost $4 trillion including interest and certain necessary tax changes in the decade after 2012, when the huge baby boom generation begins to strain Social Security and Medicare.
"Do we want to take a gamble that we won't have the money there?" said Rep. Charles Rangel of New York, senior Democrat on the House Ways and Means Committee.
The committee's chairman, Rep. Bill Thomas, R-Calif., countered that Social Security officials themselves say the bill would have a negligible effect on the program's long-term financial health.
Democrats "are using scare tactics," Thomas said.
Given the Senate Democratic opposition, House Republicans say they probably will hold votes on making individual parts of the tax cut permanent in the months leading up to the November congressional election.
"We'll give them plenty of opportunities to vote on the tax package we passed a year ago, one piece at a time," said Rep. Roy Blunt, R-Mo.
Leaders of both parties say Congress is likely to eventually extend the tax cuts, which would otherwise expire because of an obscure Senate budget rule named for veteran Democratic Sen. Robert Byrd of West Virginia. In effect, the rule forbids legislation that would worsen the deficit, or reduce the surplus, that is projected beyond the budget's 10-year window.
Included in the bill passed Thursday were several taxpayer rights and protections, one of which would give people who file electronic tax returns an extra 15 days past the April 15 deadline to file income tax returns.
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On the Net:
Information on the bill, H.R. 586, can be found at http://thomas.loc.gov
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APRIL 19, 12:20 ET
Judge Rejects Illinois' Liquor Tax
CHICAGO (AP) — A judge struck down a 1999 state liquor tax increase used to finance a $12 billion pet construction program created by Gov. George Ryan, saying the legislature blatantly ignored the constitution.
In his ruling Thursday, Cook County Circuit Judge Alexander P. White said the Legislature understated the purpose of the tax increase, then rammed it through so fast that critics didn't have a chance to respond.
The law "was never considered by a committee, a public hearing was never held on its contents, and legislators never had the opportunity to review the bill before they had to vote on it," he wrote.
He also said the law violated a constitutional requirement that legislation deal with a single subject.
The decision threatens the future of the Illinois FIRST program at a time the state budget faces a massive deficit. Illinois FIRST — short for Fund for Infrastructure, Roads, Schools and Transit — raised liquor taxes, vehicle fees and the state's bond debt to pay for construction, including repairs on neglected roads and school buildings.
State revenue officials said they would appeal White's ruling. It is unclear if the state can continue to charge the tax while it tries to overturn the ruling, which came in a lawsuit filed by Saul R. Wexler to protest the increased tax he paid on a fifth of vodka.
"We don't know about it, and we'll have to review the opinion and see what the impact is going to be," said Patty Schuh, spokeswoman for Republican Senate President James Philip.
White said his ruling was intended to "prevent the General Assembly from blatantly and continually violating the Illinois Constitution."
The House had deleted language from a bill dealing with another issue, substituted the liquor tax provisions and then quickly approved it with the concurrence of the Senate.
The decision is another in a series of court rulings and lawsuits challenging the validity of legislation passed in the Republican governor's first year in office. Critics charge the bills were designed mainly to enrich well-heeled political insiders.
Also Thursday, Ryan's former deputy chief of staff became the 43rd person to plead guilty in a licenses-for-bribes investigation from when Ryan was secretary of state. Ryan has not been charged with any wrongdoing, but the scandal has hurt his popularity, and he decided not to seek a second term.
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APRIL 19, 14:57 ET
Calif. Candidate Silent on Taxes
By ALEXA HAUSSLER
Associated Press Writer
SACRAMENTO, Calif. (AP) — Republican gubernatorial candidate Bill Simon is refusing to release his income tax returns in what has become an issue in his race against Democratic Gov. Gray Davis.
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Davis made public his 2001 tax filings Monday, and he and the Los Angeles Times have called on Simon — a multimillionaire investor — to do the same.
It is a common but not legally required practice among those seeking and holding office to show that no conflicts of interests exist between their personal investments and public duties.
Simon, who said he filed a 90-day extension request because of the complexity of his taxes, was unable to answer questions from reporters Wednesday about how much, if any, he paid in California taxes last year.
In a statement issued Thursday, his campaign said that he paid his estimated taxes by the April 15 deadline, and that his 2001 taxes "totaled in the millions of dollars."
Simon aides said he made full disclosure of his financial holdings in January. But the Los Angeles Times said the report was "so vague as to be virtually meaningless."
The candidate must note only whether an investment fell in one of three brackets: $1,000 to $10,000, $10,001 to $100,000, or more than $100,000.
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On the Net:
http://www.simonforgovernor.com
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