Preliminary Revenue Estimate and Distributional Analysis of the Tax Provisions in A Roadmap for America’s Future Act 2010
The Roadmap for America’s Future Act of 2010 is a detailed reform package that overhauls Social Security, Medicare, Medicaid, and the U.S. federal tax system. In a January 27, 2010, report, the Congressional Budget Office (CBO) analyzed the spending provisions of the plan. This paper presents the Tax Policy Center’s estimates of the revenue and distributional impact of the Roadmap’s tax provisions.
Obama’s Medicare UnPayroll Tax
President Obama’s proposal to boost the Medicare tax is a key element of the compromise health bill that looks increasingly as if it is going to become law. The Joint Committee on Taxation estimates it would generate over $180 billion over the next decade. And exactly as intended, the tax increase would fall almost entirely on the top 1 percent of taxpayers, according to a new analysis by my Tax Policy Center colleagues.
Obama would boost the Medicare tax by 0.9 percentage points for households with incomes over $200,000 for singles and $250,000 for joint filers. In addition, he’d impose a 2.9 percent tax on these same people on interest, dividends, annuities, and most other investment income. While the official Obama summary does not say so, the new tax would apply to capital gains as well. Add it up, and the 1.2 million taxpayers making $624,000 or more (their average income is about $2 million) would pay nearly 86 percent of this tax once it is fully effective in 2013.
On average, the Obama proposal would raise their taxes by more than $20,000. The top 0.1 percent of earners–those making more than $2.8 million– would get hit with a tax increase of more than $120,000. By contrast, nearly everyone else would get no tax hike at all under this proposal.
Oddly, senators who were adamantly opposed to an income tax surtax that the House included in its health reform bill seem perfectly fine with this plan. Since the two levies raise roughly the same money from the same people, I’m not sure why. But sometimes in Washington it is all about framing rather than reality.
Obama probably doesn’t hurt his cause when he says he’d use some of the money to help make Medicare solvent. That’s sounds really good. Unfortunately it is mostly meaningless. The general fund already pays a large share of Medicare. Revenues allocated to making the Medicare trust fund “solvent” would be dollars unavailable to, for instance, close the “donut hole” in the Medicare drug benefit (three-quarters of which is funded through income tax dollars). It is all the same money.
Converting this chunk of Medicare funding to a progressive income tax, rather than a regressive payroll levy, is an interesting idea. But doing it in this ad hoc way, and only for the very wealthiest taxpayers, seems pretty clumsy. But the worst part is that it will force me to stop calling the Medicare levy a payroll tax. If this bill passes, it will henceforth have to be known simply as the Medicare tax. Something else to try to remember.
It Is Time To Prepare Your Living Trust, Will And Powers Of Attorney
The Los Angeles Times ran an article on March 7, 2010 by Kathy M. Kristof in the personal finance section discussing the need to either amend your existing living trust or have one prepared along with a will, durable power of attorney for property management and an advance health care directive. Here is what the Times said:
If you’re rich, the best estate planning advice would be to die quickly. If you’re not, the best advice is to either review or rewrite your estate planning documents to make sure your heirs aren’t left high and dry if you die.
That’s because estate taxes that could allow Uncle Sam to nab up to 45% of your bequeathed assets are currently — and very temporarily — kaput.
A decadelong phase-out of the estate tax eliminated the tax completely as of January. The catch: If nothing’s done, estate taxes will boomerang back to historic levels in 2011. That means any bequest of more than $1 million would be hit with a heavy levy on any amount above that limit after December.
But estate planning isn’t just about taxes, and it’s not just for the rich.
The legal vacuum that was created by the temporary elimination of the estate tax has created potential pitfalls even for people with modest estates.
For example, if you were to die this year and had an old “by-pass” trust, the elimination of the estate tax could cause you to accidentally disinherit your spouse, said Clay Stevens, director of strategic planning for Aspiriant, a wealth management firm in Los Angeles.
These trusts, aimed at reducing estate taxes, often have boilerplate provisions for bequeathing children an amount equivalent to the estate tax “exclusion.” This year, that exclusion is unlimited, so everything goes to your kids and unintentionally there would be nothing left for a spouse, he said.
Then, too, as long as the estate tax is phased out, so is something called the “step-up” that reduced capital gains taxes on your appreciated assets after you died.
You can still get that break if you make a few strategic fixes to your estate plan this year, Stevens said. But, if you do nothing, your heirs could face capital gains taxes on all but a pittance of your appreciated property.
“This is the one year when you can’t procrastinate,” said Herbert E. Nass, a New York lawyer and author of “101 Biggest Estate Planning Mistakes.” “Absolutely everyone should review their documents.”
What if you have no documents? Then get cracking.
Studies indicate that the vast majority of Americans don’t have wills, trusts or powers of attorney. That can leave heirs in a rough spot, said Danielle Mayoras, coauthor with her husband, Andy, of “Trial & Errors: Famous Fortune Fights.”
Act now, avoid trouble later
Ignoring your estate plan can land your children with ill-suited guardians or give them a pile of cash that they’re too young to handle, she said.
If you become incapacitated before you die, it can mean that your care could be dictated by a stranger — or even an enemy. And, doing nothing can cause your heirs to bicker and battle in court — sometimes for decades.
“People never think their family is going to end up fighting,” Andy Mayoras said. “But, especially in this economy, families are fighting over money more and more.”
Nass contends that neglect of an estate plan may have cost one wealthy New Yorker his life. Wall Street titan Ted Ammon, in the throes of an acrimonious 2001 divorce, was killed by his estranged wife’s boyfriend, Nass said. The boyfriend went to prison, but the estranged wife got the estate because Ammon hadn’t yet changed his will.
“That was big news out here for a long time,” he said.
What do you need? First and foremost you need a will, which distributes your assets at death. Wills can be simple — a matter of a few paragraphs — or very complex. It depends on your wishes and whether you expect to draw up additional documents, such as a trust.
If you don’t want a trust, your will should name personal guardians for any minor children, economic guardians who can distribute assets to your children and other heirs, and an executor who will make sure the terms of the will are carried out. Finally, it should include a simple statement about what you own and who should get it.
If you’re leaving assets through a will, it’s wise to also execute powers of attorney for both financial and healthcare matters, Stevens adds. That will give somebody you trust the ability to pay your bills and make medical decisions for you if you become incapacitated before you die.
But if you want your heirs to be able to avoid probate — a time-consuming and costly legal process that involves a court reviewing the distribution of assets bequeathed through a will — you’d be better off to also create a trust. If you have a trust, your will essentially can be a one-liner: “I want all my nonretirement assets to go into my trust.”
(Retirement accounts such as IRAs should be left directly to people, not trusts. That gives your heirs the ability to withdraw those assets, and pay taxes on them, over a longer period of time.)
A trust would then distribute the assets based on the formula you’d drawn up. Trusts can accommodate difficult issues, such as whether you want to attach a few strings to your bequests as you might if you’re leaving assets to heirs who are not financially or personally responsible.
Divide and conquer . . . the IRS
Trusts also typically contain clauses that dictate who would handle your financial affairs should you become unable to handle them yourself. And many include a “by-pass” or a “two-step” provision that essentially splits the trust in two.
Splitting the trust is aimed at saving estate taxes. That’s because husbands and wives can leave each other all their assets without tax consequences, but if they want to leave money to anyone else, any amount over a set threshold is subject to tax.
The amount that’s “excluded” from estate taxes has been a moving target for the last 10 years, but is unlimited today and likely to amount to $1 million in 2011.
As a result, savvy couples with estates in excess of $1 million (in any year but 2010) would each execute a by-pass trust, leaving the amount of the estate tax exclusion to their kids or other heirs and the rest to their spouse.
That would preserve the estate tax exemption for the spouse who is the first to die. In the case of someone with $2 million in assets, that could save heirs a tidy $550,000 — or 55% of the second $1 million.
But the most important thing may be to simply make your wishes known so your heirs know that you’ve thought about them and how you’d like to provide for them when you’re gone. That alone could eliminate a lot of family bickering.
Both Nass and the Mayorases wrote books about what celebrities have done wrong with estate planning. They say they did so to give parents and their children a way of bringing up the topic to explore how they could do it better.
“It’s a way to get the dialogue started,” Andy Mayoras said.
Danielle Mayoras adds that entertainer Ray Charles’ estate plan provides a blueprint of how to do it right. He got his 12 children and their nine respective mothers in a room to talk about what he was planning, which was to give most of his money to charity. But everyone was provided for in some way, she said.
“The beauty of doing that is that everything is out in the open,” she said. “It gives the family some comfort and the ability to talk about it.”
Call Mitchell A. Port, an experienced estate planning attorney, for a consultation now. Call (310) 559-5259.
Ryan Responds to TPC’s Analysis of his Roadmap
Representative Paul Ryan (R-WI) has responded to the Tax Policy Center’s analysis of the revenue portion of his Roadmap for America’s Future. TPC found Ryan’s major tax restructuring would likely raise significantly less revenue than he expected and would substantially lower taxes for high-earners. In his response, Ryan suggests he’d be willing to adjust his plan to hit his revenue target of 19 percent of Gross Domestic Product. Here is his response:
“I appreciate the Tax Policy Center’s effort to advance the debate on our need to get a grip on the explosion of spending and put the government on a sustainable path. Our nation’s fiscal crisis is the result of Washington’s unsustainable spending trajectory, not from a lack of sufficient revenue.
“The tax reforms proposed and the rates specified were designed to maintain approximately our historic levels of revenue as a share of GDP, based on consultation with the Treasury Department and tax experts. If needed, adjustments can be easily made to the specified rates to hit the revenue targets and maximize economic growth. While minor tweaks can be made, it is clear that we simply cannot chase our unsustainable growth in spending with ever-higher levels of taxes. The purpose of the Roadmap is to get spending in line with revenue – not the other way around.
“I look forward to continuing the dialogue with the Tax Policy Center and working with my colleagues in Congress to advance real solutions to our fiscal crisis.”
The following additional points should be considered when interpreting these results:
1) The Tax Policy Center’s revenue analysis of the Roadmap is not an “official” score of this plan. The Joint Committee on Taxation (JCT) is responsible for providing the official revenue score of legislation before Congress.
2) The Roadmap’s revenue baseline was constructed last year, using CBO’s long-term “alternative fiscal scenario.” This baseline incorporated an economic forecast from early 2009. Since that time, economic forecasts have generally been lowered, which would tend to cause lower-than-predicted revenues over the near term. The Tax Policy Center’s revenue analysis of the Roadmap uses an updated economic forecast from the one originally used to construct the Roadmap revenue baseline. The different economic assumptions in these baselines likely explain a portion of the lower revenue prediction.
3) The Tax Policy Center analysis covers a 10-year period, but the Roadmap is a long-term plan with spending and revenue projections covering 75 years. As such, the analysis is not consistent with the long-term horizon of the plan. Staff originally asked CBO to do a long-term analysis of both the tax and spending provisions in the Roadmap. However, CBO declined to do a revenue analysis of the tax plan, citing that it did not want to infringe on the traditional jurisdiction of the JCT. JCT, however, does not have the capability at this time to provide longer-term revenue estimates (i.e. beyond 10 years). Given these functional constraints for an official analysis, staff relied on its original work with the Treasury Department and other tax experts to formulate a reasonable expected path for long-term revenues given the tax policies in the Roadmap combined with the economic growth projections available at the time.
Rep. Ryan’s Tax Roadmap Falls Short of His Revenue Goals
In his provocative Roadmap for America’s Future, Representative Paul Ryan (R-WI) figures that his broad tax code overhaul would eventually generate about 19 percent of Gross Domestic Product in revenues. But the Ryan plan would produce hundreds of billions of dollars-a-year less than that—about 16.8 percent of GDP—a decade from now, according to new Tax Policy Center estimates. Moreover, the plan would give a huge tax cut to the wealthy, while cutting taxes by little or nothing (and in some cases even raising taxes) for low- and middle-income people.
As a result, Ryan would likely fall far short of meeting his goal of balancing the budget and paying off the national debt by 2080, even if government spending were slashed to 1951 levels as he proposes.
Ryan’s plan is exceedingly ambitious. He’d remake Medicare, Medicaid, and Social Security and constrain future growth of nearly all other government programs. On the revenue side, he’d create an alternative tax system. Families and individuals could choose to continue to pay under the existing rules or select a two-rate structure that eliminates most current deductions and credits, repeals the Alternative Minimum Tax, and exempts all interest, dividends, and capital gains from the individual tax.
At the same time, Ryan would replace the corporate tax with a Business Consumption Tax, which is effectively a Value-Added Tax. Firms could expense all investment costs but could no longer deduct wages.
However, TPC found Ryan’s plan generates much less revenue than he projects. If all taxpayers chose the simplified system, it would produce about 16.8 percent of GDP by 2020, far below the 18.6 percent he figures for that year. If taxpayers chose the system most favorable to their situation, the Ryan plan would produce even less revenue—about 16.6 percent of GDP.
What does that mean in dollars? CBO’s most realistic projection of revenues (assuming most Bush tax cuts are extended and many middle-class families continue to be exempted from the Alternative Minimum Tax) figures the existing tax system would raise about $4.2 trillion in 2020. By contrast, Ryan’s plan would generate about $3.7 trillion, or $500 billion less in that year alone.
While TPC didn’t model the Ryan plan beyond 2020, the pattern of revenues it generates suggests it would be decades before it reaches his goal of 19 percent of GDP—very likely sometime after 2040.
Top-bracket taxpayers would overwhelmingly benefit from Ryan’s tax cuts. By 2014 people making in excess of $1 million-a-year would enjoy an average tax cut of more than $600,000. To put it another way, their after-tax income would rise by nearly 30 percent.
By contrast, the average taxpayer making $75,000 or less would pay higher taxes if they chose Ryan’s two-rate alternative. If they chose the tax plan more favorable to them, they’d do a bit better. For instance, people making between $50,000 and $75,000 would typically get a tax cut of $157 in 2014, while those making between $40,000 and $50,000 would pay $128 more on average.
These estimates are subject to lots of uncertainty. For instance, we assumed Ryan’s 8.5 percent VAT—the new business tax—would generate about 4.3 percent of GDP in revenues. TPC’s Joe Rosenberg, who modeled the Ryan plan, believes that estimate is generous. But since no such tax currently exists, it is hard to know for sure.
One other caveat: TPC did not assume that taxpayers would change their behavior in response to this new tax structure. We know they would, of course, in some ways that would generate additional revenue and in others that would lose revenue. But because these changes are so uncertain, TPC did not include them in our revenue estimates.
As I’ve written before, Ryan deserves kudos for highlighting the nation’s fiscal challenges and putting out a real deficit reduction plan. But it is hard to see how this one adds up.
Stimulus Expectations Meet Reality
As Congress debates the latest fiscal stimulus bill, commentators have been debating the effectiveness of the previous one. Much of this debate has focused on funds flowing through state capitals, cities, and towns. Depending on whom you ask, these funds have been a critical lifeline or a colossal waste of money. Both views are probably overblown. Last year’s stimulus worked pretty much like previous efforts to boost the economy through state and local governments.
Last week, Harvard’s Ed Glaeser argued that the American Recovery and Reinvestment Act was poorly targeted, going to states that did not exhibit high pre-recession unemployment. White House economic advisor Jared Bernstein countered that Glaeser had ignored large chunks of federal money, namely unemployment benefits for individuals and Medicaid aid for states (precisely the funds that were targeted to economic conditions). Meanwhile, Joshua Aizenman and Gurnain Kaur Pasricha showed in a National Bureau of Economic Research paper that, using either measure, ARRA’s “net fiscal impact” was zero.
What gives? Did Paul Krugman’s prognostications about Fifty Little Hoovers come true? Not so fast. The NBER study asked not whether ARRA boosted the economy but merely whether it stimulated government spending. (Tax cuts are completely out of the story.)
There is no doubt federal outlays grew – to the tune of about $160 billion through last December according to the CBO. But, the NBER authors say, belt tightening by state and local governments almost completely offset this increase.
As the NBER authors note, “the counterfactual of the performance of the US economy in the absence of the fiscal stimulus is hard to ascertain.” In other words, no one knows what would have happened to government spending without the stimulus. They assume it would have chugged along at typical post-World War II levels, while others think we were headed for The Great Depression 2.0. In any event, it’s certainly not hard to find a governor who says that, but for those extra federal funds, their budget situation would be a lot worse.
So was ARRA a flop? No more so than usual. States and localities generally save federal dollars for a rainy day if they can get away with it, much like individuals save tax cuts. This tendency also frustrated Washington architects of General Revenue Sharing during the 1970s and 1980s.
In any case, expecting states and localities to bail out the national economy, aid the needy, and (literally) pave the way for a new economic future may be a bit much. Next time the federal government fights a recession by sending money to state and local governments (as it probably should), we should avoid weighing this effort down with excessive expectations.
Executor’s And Administrator’s Probate Duties
LIABILITIES AND DUTIES OF PERSONAL REPRESENTATIVE
When the California probate court appoints you as personal representative of an estate, you become an officer of the court and assume certain duties and obligations. An attorney is best qualified to advise you about these matters. You should understand the following:
1. INVENTORY OF ESTATE PROPERTY
Locate the estate’s property
Determine the value of the property
You must arrange to have a court-appointed referee determine the value of the property unless the appointment is waived by the court. You, rather than the referee, must determine the value of certain “cash items.” An attorney can advise you about how to do this.
File an inventory and appraisal
Within four months after Letters are first issued to you as personal representative, you must file with the court an inventory and appraisal of all the assets in the estate.
File a change of ownership
At the time you file the inventory and appraisal, you must also file a change of ownership statement with the county recorder or assessor in each county where the decedent owned real property at the time of death, as provided in section 480 of the California Revenue and Taxation Code.
2. MANAGING THE ESTATE’S ASSETS
Prudent investments
You must manage the estate assets with the care of a prudent person dealing with someone else’s property. This means that you must be cautious and may not make any speculative investments.
Keep estate assets separate
You must keep the money and property in this estate separate from anyone else’s, including your own. When you open a bank account for the estate, the account name must indicate that it is an estate account and not your personal account. Never deposit estate funds in your personal account or otherwise mix them with your or anyone else’s property. Securities in the estate must also be held in a name that shows they are estate property and not your personal property.
Interest-bearing accounts and other investments
Except for checking accounts intended for ordinary administration expenses, estate accounts must earn interest. You may deposit estate funds in insured accounts in financial institutions, but you should consult with an attorney before making other kinds of investments.
Other restrictions
There are many other restrictions on your authority to deal with estate property. You should not spend any of the estate’s money unless you have received permission from the court or have been advised to do so by an attorney. You may reimburse yourself for official court costs paid by you to the county clerk and for the premium on your bond. Without prior order of the court, you may not pay fees to yourself or to your attorney, if you have one. If you do not obtain the court’s permission when it is required, you may be removed as personal representative or you may be required to reimburse the estate from your own personal funds, or both. You should consult with an attorney concerning the legal requirements affecting sales, leases, mortgages, and investments of estate property.
3. Record Keeping
Keep accounts
You must keep complete and accurate records of each financial transaction affecting the estate. You will have to prepare an account of all money and property you have received, what you have spent, and the date of each transaction. You must describe in detail what you have left after the payment of expenses.
Court review
Your account will be reviewed by the court. Save your receipts because the court may ask to review them. If you do not file your accounts as required, the court will order you to do so. You may be removed as personal representative if you fail to comply.
4. INSURANCE
You should determine that there is appropriate and adequate insurance covering the assets and risks of the estate. Maintain the insurance in force during the entire period of the administration.
5. NOTICE TO CREDITORS
You must mail a notice of administration to each known creditor of the decedent within four months after your appointment as personal representative. If the decedent received Medi-Cal assistance, you must notify the State Director of Health Services within 90 days after appointment.
6. CONSULTING AN ATTORNEY
If you have an attorney, you should cooperate with the attorney at all times. You and your attorney are responsible for completing the estate administration as promptly as possible.
When in doubt, contact your attorney. Call lawyer Mitchell A. Port at (310) 559-5259. This statement of duties and liabilities is a summary and is not a complete statement of the law. Your conduct as a personal representative is governed by the law itself and not by this summary.
Tax Credits Make Small Businesses Health Reform Winners, Not Losers.
Critics of health reform legislation assert that it would crush small business. The National Federation of Independent Business, for instance, insists reform will have “a costly and punitive impact” on these firms.
I do not understand this argument. Small businesses face huge disadvantages in today’s insurance market. Unlike their larger competitors, they can’t self-insure or bargain for low premiums and their small risk pools make them highly susceptible to huge rate hikes if just a single employee gets sick. The health bill would help level that playing field.
Many—though certainly not all–small businesses would come out ahead. There are lots of health bills out there, but let’s look at President Obama’s version. In it, small businesses would get tax subsidies for offering insurance to their workers, low- and some moderate-wage workers will get their own subsidies to purchase coverage (and some may even be newly covered by Medicaid). Small firms would get access to exchanges that should make it less costly for them to insure their workers. And, perhaps most important, the bill would take some small steps to control future health costs.
There are some trade-offs. Many firms with more than 50 workers would have to pay a modest penalty if they do not offer insurance. Those with more than 200 workers must automatically enroll all employees in their health plans. But the issue that getting the most attention is Obama’s effort to impose an excise tax on high-cost employer-sponsored plans. Because small businesses on average pay higher premiums than larger firms, some critics of reform argue that these smaller firms would disproportionately suffer under this tax.
This concern seems wildly overblown. First, the Obama plan is far from draconian. It would impose a 40 percent tax on the value of plans in excess of $10,200 for individual coverage and $27,500 for families. But the tax would not take effect until 2018. And companies with workers whose coverage is more costly due to age or gender or those that are located in high-cost states could offer even more costly plans without being subject to the tax.
Second, according to the Kaiser Family Foundation, the average cost of a family plan last year was $13,375. Other research estimates that small firms pay, on average, about 20 percent more, so their typical cost is about $16,000—far below the $27,500 threshold for taxable plans.
So while small firms, on average, may be more likely than big companies to pay the penalty, few of them will. And, in any event, none will pay a dime of this excise tax for at least eight years. By then, if the exchanges work out as hoped, premiums should be much more manageable.
At the same time, very small firms (include many sole proprietorships) would be in line for an immediate, extremely generous tax credit for buying insurance. From 2010-2013, these businesses would be eligible for a credit of up to 35 percent of premiums. Starting in 2014, they could get a credit of up to 50 percent of the cost of buying insurance through a state exchange, as long as they pay at least half the premium.
It is easy for critics to pull out individual elements of this vast health plan, rip them as tax increases, and claim, as the NFIB does, that the entire package would be a disaster for small business. But considering the huge labor market disadvantages these businesses face today as a result of their high insurance costs, most of these small firms are likely to be big winners once the dust settles.
Federal Tax Liens Are A Serious Problem
The “National Taxpayer Advocate” 2009 Annual Report to Congress in part discusses the notice of federal tax lien (NFTL). The Report said that on average, a lien filing reduces a taxpayer’s credit score by 100 points. Unpaid tax liens may remain on a taxpayer’s credit history, leaving a derogatory mark on the credit history indefinitely. Released liens, including those paid off by the taxpayer, are not generally removed from the credit history until seven years from the date of release. Thus, an NFTL has a significant long-term impact on a taxpayer’s credit record. As a result, some lenders decline to extend credit to a taxpayer if the IRS has filed an NFTL against the taxpayer’s property. Others will charge substantially higher rates, even if the lien is subordinated. Impaired credit history can also affect a taxpayer’s ability to obtain insurance or rent an apartment on reasonable terms. Moreover, some licensing boards require members to maintain a clean credit history and some employers require employees to do so as a condition of employment. Thus, a lien filing can mean that employees lose their jobs and self-employed individuals cannot maintain the licensing necessary to remain in business. It can also hamper the taxpayer’s ability to stay compliant and obtain credit needed to pay preexisting tax debts.
Properly applied, the notice of federal tax lien (NFTL) can be an effective tool in tax collection. It gives the IRS a priority interest in the taxpayer’s property, such as a home or a car, and may enable the IRS to collect all or a portion of the tax debt if the taxpayer sells or refinances the property.
If improperly applied, however, tax liens have the potential to cause needless harm to taxpayers and undermine long-term tax collection.
If improperly applied, however, tax liens have the potential to cause needless harm to taxpayers and undermine long-term tax collection. Assume, for example, that a taxpayer loses his job during a recession and becomes unable to pay his tax bill. The filing of a tax lien can significantly harm the taxpayer’s credit and thus negatively affect his or her ability to obtain financing, find or retain a job, secure affordable housing or insurance, and ultimately pay the outstanding tax debt. Moreover, the government must consider that its role as a creditor is different from that of a private entity creditor. If the filing of a tax lien drives up the taxpayer’s costs and renders him or her unemployed or underemployed, the government may be forced to make outlays in the form of unemployment benefits, food stamps, and the like. Thus, the imprudent filing of a tax lien has the potential to badly damage the taxpayer and the taxpayer’s family and simultaneously reduce federal revenue – a lose-lose proposition.
For this reason, the decision whether to impose a tax lien should be made on a case-by-case
basis. Yet, the IRS files many liens systemically….
The results of research done by the Taxpayer Advocate suggest that the IRS’s use of liens may not be furthering the agency’s revenue collection objective and, equally significant, that the IRS has shown very little interest in evaluating the effectiveness of liens for itself.
A federal tax lien (FTL) arises when the IRS assesses a tax liability, sends the taxpayer notice and demand for payment, and the taxpayer does not fully pay the debt within ten days. An FTL is effective as of the date of assessment and attaches to all of the taxpayer’s property and rights to property, whether real or personal, including those acquired by the taxpayer after that date. This lien continues against the taxpayer’s property until the liability either has been fully paid or is legally unenforceable.
It is IRS policy not to use the NFTL as a negotiating tool. The IRS is required to release a lien not later than 30 days after the underlying liability either is fully satisfied through full payment of tax or is legally unenforceable (typically, by expiration of the statutory period for collecting the tax).
If you have tax problems, call a qualified tax attorney. Call Mitchell A. Port at (310) 559-5259.
Held Harmless by Higher Income Tax Rates?
In 2010, 45 percent of tax returns will either remit no federal income tax or receive a net tax refund. But this figure overstates the share of taxpayers who would be unaffected by higher income tax rates. Raising all rates by 1 percent would hold only 34 percent of tax returns harmless; others would either pay higher taxes or receive smaller net rebates.