Happy New Year.

Jan 8th 2008
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By Liz Zitzow - Back from my holidays now.

And I see that Huckabee's in the lead, with his flat tax. As a tax accountant, that would put me and 200,000 H&R Block employees out of work in fairly short order.

I have to wonder how he thinks a National Sales Tax won't end up with more cheating than the current system. The compliance rate for individuals is close to 98%, thanks in no small part to W2s, 1099s, and a host of other clever tracking mechanisms. Meanwhile, compliance rates on small businesses - primarily ones that get paid in cash - is closer to 60%. It seems illogical to me to shift the tax reporting and tax filing burden from those who do pay to those who don't.

And another New Year's thought: The so-called "Tax Gap". The tax gap includes all the money the IRS is trying to collect but hasn't yet done so. This includes a large number of individuals who haven't filed a 1040 for some years, for whom the IRS computes a balance due on their behalf with the W2s and 1099s that they have to hand. A typical assessment includes tax at regular rates (not capital gains rates) on the gross sales reported on a 1099-B. In actuality, the taxpayer will have a substantial cost basis to credit against the sale, and the sale is likely to be eligible for the 15% capital gains rate. I saw one assessment off by over $1,000,000 a few years ago.

These figures are included in the tax gap, making the tax gap overstated by an unknown amount. The tax gap smaller than advertised. How much smaller? Who knows?


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