The Numbers Don't Add Up!
As I mentioned a moment ago, the IRS believes small businesses are evading taxes to the tune of US$100 billion annually. That's the number IRS Commissioner Mark Everson dangled in front of the Senate Budget Committee in 2006. Everson also said that if Congress unleashed the IRS against small business, it could recover "between US$50 billion and US$100 billion without changing the dynamic between the IRS and the people."Now, Congress has done exactly that. Only the numbers don't add up. A more recent study from the Treasury Department says that credit card transaction reporting would net less than US$10 billion in added revenue. And indeed, according to the Congressional Budget Office, the new provisions will raise slightly less. The Budget Office estimated they'll raise a total of US$9.8 billion over a 10-year period.
The Hidden Agenda for Reporting Credit Card Transactions
That's a lot of dough, although it's a pittance for the tax-and-spenders inside the beltway. For that reason, I don't think matching up credit card transactions with eBay power sellers is the real reason Congress enacted this part of the housing bailout bill. Instead, I think there's a hidden agenda for a much bigger take. I could be wrong, but it seems to me that setting up an infrastructure that matches credit card transactions with payments to Internet merchants is a tailor-made solution to help collect sales tax. Right now, most Internet transactions still aren't subject to any form of sales tax. States will be chomping at the bit to get the IRS to share this data with them, so they can directly bill merchants for in-state sales. Any company that does business on the Internet, but doesn't charge sales tax is at risk. It's not necessarily simple to "know what you owe," either. In addition to the sales tax regimes in effect in nearly all 50 states, online merchants that collect sales tax must negotiate a maze of city, county, and municipal taxes. Plus, they must file sales tax returns in the jurisdictions in which they sell goods or provide services. Small merchants that can't justify investing thousands of dollars in software that can make the necessary calculations, and file the necessary returns, will be forced out of business. Then there are the periodic calls for some kind of future national sales tax or value-added-tax. The infrastructure this bill creates will make this tax easy to collect. Everything will be in place, and the IRS can simply send a bill to merchants that don't pay the tax. Even if this worst-case scenario doesn't come to pass, it's quite clear that if you operate a small business, the IRS has you in its sights. And come 2011, you'd better have the data to track every dollar you spend in business expenses against the gross income reported to the IRS. And if you don't, you can count on a tax inquisition.
As I mentioned a moment ago, the IRS believes small businesses are evading taxes to the tune of US$100 billion annually. That's the number IRS Commissioner Mark Everson dangled in front of the Senate Budget Committee in 2006. Everson also said that if Congress unleashed the IRS against small business, it could recover "between US$50 billion and US$100 billion without changing the dynamic between the IRS and the people."Now, Congress has done exactly that. Only the numbers don't add up. A more recent study from the Treasury Department says that credit card transaction reporting would net less than US$10 billion in added revenue. And indeed, according to the Congressional Budget Office, the new provisions will raise slightly less. The Budget Office estimated they'll raise a total of US$9.8 billion over a 10-year period.
The Hidden Agenda for Reporting Credit Card Transactions
That's a lot of dough, although it's a pittance for the tax-and-spenders inside the beltway. For that reason, I don't think matching up credit card transactions with eBay power sellers is the real reason Congress enacted this part of the housing bailout bill. Instead, I think there's a hidden agenda for a much bigger take. I could be wrong, but it seems to me that setting up an infrastructure that matches credit card transactions with payments to Internet merchants is a tailor-made solution to help collect sales tax. Right now, most Internet transactions still aren't subject to any form of sales tax. States will be chomping at the bit to get the IRS to share this data with them, so they can directly bill merchants for in-state sales. Any company that does business on the Internet, but doesn't charge sales tax is at risk. It's not necessarily simple to "know what you owe," either. In addition to the sales tax regimes in effect in nearly all 50 states, online merchants that collect sales tax must negotiate a maze of city, county, and municipal taxes. Plus, they must file sales tax returns in the jurisdictions in which they sell goods or provide services. Small merchants that can't justify investing thousands of dollars in software that can make the necessary calculations, and file the necessary returns, will be forced out of business. Then there are the periodic calls for some kind of future national sales tax or value-added-tax. The infrastructure this bill creates will make this tax easy to collect. Everything will be in place, and the IRS can simply send a bill to merchants that don't pay the tax. Even if this worst-case scenario doesn't come to pass, it's quite clear that if you operate a small business, the IRS has you in its sights. And come 2011, you'd better have the data to track every dollar you spend in business expenses against the gross income reported to the IRS. And if you don't, you can count on a tax inquisition.
AND THIS:
Is the IRS About to Extend Their Reach?
IRS officials just revealed plans to tighten the rules of their so-called "Qualified Intermediary" (QI) program. Under the QI program, foreign banks have held billions of dollars offshore for American clients without legally having to disclose their names to the IRS. In exchange, the banks promised to know who their clients are, withhold any taxes due on U.S. securities in their accounts and send that money to the IRS. More than 7,000 foreign banks are enrolled in the program and paid about US$2 billion to the IRS last year.This all began in 2001. Since then, the IRS has forced foreign banks and financial institutions to become IRS informants, a.k.a. "qualified intermediaries" (QI). To put it plainly, it's just like how the IRS forced American bankers to spy on their customers with the Bank Secrecy Act and the PATRIOT Act. In the same way, the QI program turned offshore bankers into spies on their U.S. clients, at least in certain defined situations.
Since the IRS imposed the QI rules, U.S. persons holding U.S.-based investments purchased through their offshore banks did have a choice:
1. They could either have offshore banks report the American holdings to the IRS.2. Or they could have the bank withhold a 30% tax on all interest and dividends paid to them. .
To avoid either event, the U.S. investor could (and we have recommended) not hold any U.S.-based investments through an offshore bank or financial institution. If you don't have U.S. investments, then you're not required to report under the 2001 QI rules. By comparison, if you held foreign, non-U.S. investments offshore, you would have been exempt both from the QI reporting and the QI tax withholding rules...until now.
IRS officials just revealed plans to tighten the rules of their so-called "Qualified Intermediary" (QI) program. Under the QI program, foreign banks have held billions of dollars offshore for American clients without legally having to disclose their names to the IRS. In exchange, the banks promised to know who their clients are, withhold any taxes due on U.S. securities in their accounts and send that money to the IRS. More than 7,000 foreign banks are enrolled in the program and paid about US$2 billion to the IRS last year.This all began in 2001. Since then, the IRS has forced foreign banks and financial institutions to become IRS informants, a.k.a. "qualified intermediaries" (QI). To put it plainly, it's just like how the IRS forced American bankers to spy on their customers with the Bank Secrecy Act and the PATRIOT Act. In the same way, the QI program turned offshore bankers into spies on their U.S. clients, at least in certain defined situations.
Since the IRS imposed the QI rules, U.S. persons holding U.S.-based investments purchased through their offshore banks did have a choice:
1. They could either have offshore banks report the American holdings to the IRS.2. Or they could have the bank withhold a 30% tax on all interest and dividends paid to them. .
To avoid either event, the U.S. investor could (and we have recommended) not hold any U.S.-based investments through an offshore bank or financial institution. If you don't have U.S. investments, then you're not required to report under the 2001 QI rules. By comparison, if you held foreign, non-U.S. investments offshore, you would have been exempt both from the QI reporting and the QI tax withholding rules...until now.
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