

How to turn in your tax-cheating neighbor - kevinrpope
http://professional.wsj.com/article/SB10001424053111903352704576540840395329676.html?mod=WSJ_hp_editorsPicks_1

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tptacek
For those of you who don't want to go through the trouble of tracking down the
unredacted full article, here're the nut grafs:

 _The U.S. has been rewarding people who turn in fellow citizens or companies
defrauding government programs since Congress's passage of the False Claims
Act in 1863. Whenever there has been an income tax—briefly during the Civil
War, and permanently since 1913—the IRS (or its predecessor) has had its own
whistleblower program, says tax historian Joseph Thorndike of Tax Analysts, a
nonprofit publisher. But payments tended to be small and rare because IRS
officials were uncomfortable with "bounty hunting."_

 _The landscape changed in 2006. Heartened by the success of a whistleblower
program for nontax issues such as government contracts, Congress overhauled
the special tax provisions on whistleblowers and set up the IRS's large-award
program._

The IRS does not want your tax-cheating neighbor, but if you work for a
company that is cheating the government out of _tens of millions of dollars_ ,
I think we _all_ want you to act.

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roel_v
Actually, I would hope that they would pursue those cheating for 1000's just
as hard as those who cheat for 1000000's, corporation or not.

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waffle_ss
Tax laws need to be much, much simpler. The more complicated they are, the
easier it will be for people to sneak by without paying and for loopholes to
exist. It's the same thing that happens when a program drifts away from
triviality - the probability of bugs increases greatly. Make tax laws trivial,
and most of these problems - and most of the need for the IRS - would go away.

~~~
tzs
Tax laws generally start out simple, then get complex patching holes. My
favorite example.

Once upon a time a long time ago, a company wanted to pay a dividend to
shareholders. That would be taxed as ordinary income to the shareholders. The
company's accountants had a brilliant idea.

1\. Do a stock split. Say, 105 for 100.

2\. Do a stock buyback, where the company buys back 1/21 of the outstanding
shares.

Net result to shareholders: every 100 shares becomes 105, then the company
buys back 5 out of every 105, leaving the shareholder with 100 and some cash.
Since the cash came from the sale of stock, it's capital gains.

The tax code was fixed so this would not work, by inserting a new section that
gives conditions that a stock buyback must meet to be considered a stock
buyback. If it fails to meet the conditions, it is considered to be equivalent
to a dividend distribution and taxed as such. The conditions have to take into
account a bunch of factors, so as to not penalize legitimate buybacks but not
leave holes that allow abuse.

I believe that a large part of the complexity of the tax code comes from this
kind of thing.

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wisty
Why should income and capital gains be taxed differently anyway?

If it's to stop Grandma getting hit with a huge marginal tax when she sells
her house (despite it being a once-off kind of thing), just introduce some
kind of smoothing. If your income is uneven, the tax man can give concessions
(if you get a lot of money after a period of low income), and rebates (if you
have a low income period _after_ making a lot of money).

Easy, right? No more need for tricky rules about how to move money between the
different categories.

~~~
dantheman
Because income and capital gains are two different things. Capital gains
should be lower because there is a risk that you may lose money, if you add a
high tax on top of that lots of investments become not worth it.

~~~
sqrt17
The problem with this way of thinking is that, this is not necessarily true:
Regular ways of getting income also make you take part in the risk of whatever
or whoever you get your income from, and as a result, more and more things
that would be income get wrapped into capital gains.

The fair thing to do would be something where losing money (or unvoluntarily
suffering relocation expenses or losses as a result of your source of income)
gives you a tax credit, valid for the next 10 years.

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mchusma
This might be the most terrifying program I have ever heard of. I am
struggling to think of anything other than the potential consequences of this.

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bradleyland
Terrifying? Even if you're anti-tax, those to fail to pay taxes are a big part
of the problem. What's the motivation to fight over-taxation if those who wish
to opt-out can simply do so with little chance of consequence.

I know of at least two business owners who are flat out stealing from the IRS
and their employees. Both of them are more than three years behind on _federal
withholding_ tax payments. It's not even their money! This is their employees'
withholding tax. I know this because of public filings against them. I can
only imagine their personal tax situation.

Everyone I talk to says the same thing: "Ooooooh boy, they've really got it
coming." When? When do they have it coming, exactly? Because as far as I can
see, they're both still driving cars that are more expensive than mine, live
in houses that are bigger than mine, and spend money like it's going out of
style.

I have no desire to skip on my taxes, and I'm perfectly happy with the life I
live, but it flat out pisses me off to see these people cheat the system and
get away with it. It makes me feel like the "big bad IRS" is just some
children's fairy tale meant to scare normal people in to compliance.
Meanwhile, a whole pack of miscreants run amok with other peoples' money. It's
just not right. Frankly, I'd rather see these people in jail than the pot head
down the street that is spending 90 days in jail for the joint he had in his
pocket while walking home from work. True story.

~~~
knowtheory
I really don't understand why OP has his knickers in a twist. What're the
potential consequences of falsely reporting someone? They get audited? The IRS
already does random (but infrequent audits).

Given the fact that the IRS would indeed have to investigate and then
prosecute whatever fraud may be present, they would have to have a fairly
solid and material understanding of the circumstances leading to tax dodging.
People who are filing false claims can and probably should be prosecuted for
misleading the government officials.

The IRS isn't some inhuman soul sucking beast. It is a bureaucracy, but when
you get down to the level of dealing with individuals who have discretion to
make decisions, every experience I've had with them so far has been friendly
and understanding. As far as i can tell they really do try to err on the side
of not screwing individuals at the very least.

~~~
feydr
Obviously you have never been through an 'audit' before, and last I checked,
the IRS is very inhuman

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georgecalm
Here's a link to the full article:
[http://online.wsj.com/article/SB1000142405311190335270457654...](http://online.wsj.com/article/SB10001424053111903352704576540840395329676.html)

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statenjason
Googling "tax fraud" offers links to bounty hunting with this program.

Edit: This wasn't a suggestion, but rather an observation.

