There currently exists
within the federal tax administration system a form of “Catch 22”. The
Internal Revenue Service cannot collect outstanding liabilities because taxpayers cannot afford to pay them – and taxpayers
cannot afford to pay them because the amounts are too high due to accrued penalties and interest.
An initial outstanding
tax liability of $5,000 could easily mushroom to $15,000 or more over the years with constant accrual of penalties and interest. The end result in many cases is that the IRS writes off the entire $15,000.
Obviously the IRS
could never permanently remove penalties and interest. If they did taxpayers would have no motivation to file and pay
their taxes on time.
A temporary Federal
Tax Amnesty, similar to the programs used with great success by most of the states, would generate millions, if not billions,
of dollars, allow a great many taxpayers to get rid of the IRS cloud from over their heads, permit the IRS to “close
the books” on a substantial number of overdue accounts, and encourage the filing of delinquent returns.
Here is how a Federal
Tax Amnesty Program would work -
The amnesty would apply to all federal taxes –
* Individual income taxes, the Alternative Minimum Tax, and the various
"other taxes", such as self-employment tax, that are included on the Federal 1040.
* Corporate income taxes and the corporate
* Payroll Taxes.
Other federal taxes could be added to the list at the discretion of Congress.
The IRS would begin with the original outstanding tax liability only
(no accrued interest and penalties would be included) on all previously filed federal tax returns that are not currently part
of a criminal prosecution. From this they would apply all appropriate amounts
to date from direct taxpayer payments, “garnishments” of subsequent federal and state tax refunds and rebates,
other federal offsets, etc. against the open liability. None of these payments
would be applied against previously assessed penalty and interest; they would all be used to reduce the original “principal”.
Taxpayers would have 6 months from the date of the initiation of the
Amnesty program to pay the net outstanding tax liability without any penalties and interest.
At the same time, individuals, corporations and other businesses who
have not filed certain income, payroll or other tax returns could do so during the amnesty period and pay only the tax due,
with no penalty or interest assessment. So if you did not file your 2005 (or
2002 for that matter) Form 1040 (or appropriate business or payroll return) at all because you owed $2,000, you could do so
now and pay only $2,000.
The IRS would mail to all delinquent taxpayers an itemized “bill”
for the outstanding tax due under Amnesty based on their records, so it would be clear just what needed to be paid.
If an open tax liability is not satisfied in full, or a delinquent return
is not filed, during the Amnesty period a higher penalty and/or interest rate would apply to the remaining outstanding balance
– a further incentive to pay up during the program.
The legislation creating the Federal Tax Amnesty Program would state
that the federal government would not be able to institure another Amnesty for ten (10) of fifteen (15) years after the end
of the current amnesty period.
Many of the state Tax Amnesty programs
have greatly exceeded government expectations, including the most recent one in Nevada. In New Jersey there have been
three such Amnesty offerings over the years, in 1987, 1996 and 2002. The most successful was 1996 when $359 Million
was raised. The New York State program that ran from late 2002 through January 2003 generated $583 Million.
Congress has looked at a Federal Tax
Amnesty Program in the past. The Congressional Joint Committee on Taxation had released a report concluding that amnesty
would ultimately hinder tax collection and reduce net revenue. The report indicated that individuals would become less
likely to pay their taxes in future years, perhaps in expectation that government would once again write off interest and
I do not agree. The concerns expressed by the JCOT regarding reduced payment
in anticipation of a future amnesty have not proven to be a problem with the various state programs.
Besides, as I said above, "the legislation creating the Federal Tax Amnesty Program would state that the federal government
would not be able to institure another Amnesty for at least ten (10) or fifteen (15) years after the end of the current amnesty
IRS collection activity would not cease or slack off once the initial program has completed in anticipation of future
amnesties. If anything the Service should be more aggressive in its collection efforts after the amnesty period ends.
Tax Amnesty is aimed less at tax cheats and more at honest Americans who have been so overwhelmed by the accrual of
interest and penalties that they walk away from their tax debt altogether. It is a variation on the current Offer In
I would urge that Congress seriously consider implementing a Federal Tax Amnesty Program in the very near future.
It would truly be a "win-win" situation for all parties involved.
Thank you very much
for your time to read my proposal.
Very truly yours,
John Q Taxpayer