Wednesday, August 27, 2008

Splitting Hairs at the Chamber of Commerce

Craig's post this morning on the issue of corporate taxes made me dig through my files to pull up another Government Accountability Office (GAO) report I remember seeing last month about corporate tax compliance. In July the GAO released a report entitled "Businesses Owe Billions in Federal Payroll Taxes," which found, among other things, that businesses owed billions in federal payroll taxes. From the report:

IRS records show that, as of September 30, 2007, over 1.6 million businesses owed over $58 billion in unpaid federal payroll taxes, including interest and penalties. Of that amount, 70 percent of all unpaid payroll taxes are owed by businesses with more than a year (4 tax quarters) of unpaid federal payroll taxes, and over a quarter of unpaid payroll taxes were owed by businesses that accumulated tax debt for more than 3 years (12 tax quarters). Some of these businesses took advantage of the existing tax enforcement and administration system to avoid fulfilling or paying federal tax obligations-thus abusing the federal tax system.

Yikes. That sounds pretty bad. But it gets worse:

GAO selected 50 businesses with payroll tax debt as case studies and found extensive evidence of abuse and potential criminal activity in relation to the federal tax system. The business owners or officers in our case studies diverted payroll tax funds for their own benefit or to help fund business operations. (emphasis added)

While I think Chamber of Commerce spokesman Martin Regalia would be hard pressed to come to the defense of these companies, OMB Watch has larger fish to fry. While the tax evasion and cheating carried out by the 1.6 million companies as detailed in this report is bad criminal unpatriotic vile, what might be worse is the poor tax enforcement system at the IRS that allowed them to not only get away with it once, but get away with it year after year after year.

Although IRS has powerful tools at its disposal to prevent the further accumulation of unpaid payroll taxes and to collect the taxes that are owed, IRS's current approach does not provide for their full, effective use. IRS's overall approach to collection focuses primarily on gaining voluntary compliance-even for egregious payroll tax offenders-a practice that can result in minimal or no actual collections for these offenders. Additionally, IRS has not always promptly filed liens against businesses to protect the government's interests and has not always taken timely action to hold responsible parties personally liable for unpaid payroll taxes.

Hmmm...the IRS doesn't do a good job of collecting taxes. Not really news - we've been saying that for months. But I wonder if the Chamber will be promoting the findings of this report as fervorently as they did the one on corporate tax liabilities. I'm guessing they won't.