As many taxpayers gather their financial documents to do their tax returns, a number of unlucky filers are finding that someone else has already filed in their name — and walked away with their refunds.
For the 12th year in a row, identity theft topped the list of consumer complaints received by the Federal Trade Commission in 2011, with nearly 280,000 complaints, according to a report released on Tuesday. And a bigger chunk of those cases is tax related, with 24% of identity theft complaints being tied to tax or wage-related fraud, up from about 15% in 2010, according to the FTC.
For some victims, the fraud isn’t discovered until they hit the send button on their electronic tax returns — and get a rejection note from the IRS. Other times it takes a little longer to know something is wrong, such as not receiving a refund check. You might also receive an IRS letter saying the income reported doesn’t match their records — a sign someone else could be using that Social Security number.
One revenue-raising strategy unveiled in President Barack Obama’s budget proposal on Monday calls for beefing up the Internal Revenue Service’s enforcement efforts. That could mean increased scrutiny on individual tax returns, especially for small business owners.
The president’s budget plan would increase the IRS’s budget next year to $12.8 billion, about $950 million more than the 2012 budget, with the goal of ramping up collections from individuals and business that are behind on federal and state taxes or that owe government loans. The bulk of this money would be part of a program to prevent tax evasion and cheating and to update the IRS’s data system, according to the proposal. The reforms call for increasing collection by more than $2 billion over the next 10 years, much of that owed to states. The enforcement program should return $5 for each additional IRS dollar spent, according to the proposal. The IRS did not respond to requests for comment.
Thanks to countless deductions and credits, the federal income tax brackets are ruined.
Few people pay 10%, 15%, 25%, 28%, 33% or 35% of even their “marginal” dollar in income taxes. So, Monday’s proposal from President Barack Obama is really about average tax rates.
The plan picks up on one of Warren Buffett’s frequently cited notions — that the richest Americans pay a lower percent of their income in taxes than those earning far less. A progressive tax system, such as the one purportedly used in the United States, is designed to do the opposite.
As part of his broader effort to bring down the deficit and win support from both parties for his budget proposal, President Barack Obama pledged not only to work to rein in entitlements like Medicare and Medicaid, but also, according to The Wall Street Journal, “overhaul the tax code to root out “spending embedded” in it—a reference to tax breaks.”
Meanwhile, Treasury Secretary Timothy Geithner “reiterated an administration call for corporate-tax changes that eliminates loopholes and reduces the overall rate companies pay.”
It’s partly a shot at the corporate tax rate–which on the surface seems to be quite high, but in reality is so full of loopholes that many corporations ultimately pay very little in taxes. US News & World Report blogger Susan Milligan–echoing Tax Guy Bill Bischoff–says lowering the corporate tax rate isn’t really the answer. It’s true that many U.S. companies pay significantly lower effective rates than the official top rate, but many tax experts say it’s still high enough to be a drag on domestic investment.
Still, Closing the loopholes is far more critical, argues Milligan who says, ” Lowering the corporate tax rate would cost jobs. Mind you, the job loss would not be among those sad grunts now pictured in newspapers, signing up for unemployment benefits. No, the new unemployed would be the well-paid tax attorneys who scour the tax code for loopholes. They would be followed in the unemployment line by the lobbyists who bustle around Capitol Hill fighting to keep those loopholes.”
The Tax Blog brings together a team of award-winning tax journalists from the Dow Jones network and around the web to examine the tax issues, changes and legislation that affect families, investors and small business owners. Our contributors include Tax Report columnist Laura Saunders (WSJ), Tax Guy columnist Bill Bischoff and senior reporter Jilian Mincer (SmartMoney.com), retirement-focused reporter Anne Tergesen (WSJ), wealth management writer Arden Dale (Dow Jones Newswires), TaxWatch columnist Eva Rosenberg and personal finance reporter Andrea Coombes (MarketWatch), and reporter Alyssa Abkowitz (SmartMoney). They’ll provide the latest news and insight, mine the tax code for tips and loopholes, and answer your questions about tricky tax situations. Contact the The Tax Blog with ideas, suggestions or tax questions at email@example.com.