| WASHINGTON, April 14
WASHINGTON, April 14 As a deep recession strips
Americans of their jobs, homes and investments, the 2009 U.S. tax
season promises to see a large uptick in first-time delinquent
"Our calls are up 280 percent," said Richard Boggs, founder
and chief executive of Los Angeles-based Nationwide Tax Relief,
a firm that helps delinquent taxpayers resolve tax issues.
"We've seen a huge rise in what we call the rookie
delinquent taxpayer," he said. "They are incredibly scared, and
they have no idea what's going to happen to them because, God
bless them, they've never owed before."
As the weak economy puts job security and a steady flow of
income on a slippery slope, many are wary of the U.S. tax man,
tax consultants say.
With household balance sheets under pressure, more U.S.
households are having trouble keeping up with their day-to-day
bills and struggling to pay their taxes.
"Folks are not paying their taxes because they are spending
it on necessary living expenses," said Kristin Lavieri, an
accountant with Weinstein & Anastasio, PC in Hamden,
She added that more of the self-employed, who are required
to pay taxes each quarter, are likely to end up with back
taxes. "When there is not enough money for general operating
expenses, there most definitely isn't going to be enough for
quarterly estimates," Lavieri said.
Among those not self-employed, many also have to make tough
decisions that could carry long-term financial consequences.
Many withdrew funds from 401k and IRA retirement savings
accounts before the permitted time, unaware of the punitive
taxes and penalties this would generate, said Larry Walker Jr,
president of the financial and tax services firm 4-Serenity Inc in
Withdrawals from a retirement account before reaching the
age of 59.5 are considered taxable income and generally incur
an additional tax of 10 percent of the amount.
Other taxpayers did not have enough tax withheld from
paychecks. As a result, they now owe taxes or will not receive
the amount of refund they usually do, Walker said.
FEAR, SECRECY CAUSE MORE PROBLEMS
"If we are seeing a nearly threefold increase in people who
have tax problems who have never had tax issues, it shows that
things are worse than people think right now," Boggs said.
But tax woes are such a taboo issue that over 40 percent of
Boggs' clients have told him nobody knows about their problems,
and that often includes their spouses.
"When they see a tax bill that they know they can't pay,
they freeze up," Boggs said. "A very innocent procrastination
can get you into a lot of hot water with the IRS."
The Internal Revenue Service, which collects taxes in the
United States, vowed to show its gentler side this year.
"We recognize the economic realities that are out there,"
IRS Commissioner Doug Shulman told reporters. "We're available
to work with people."
Critics are skeptical this will happen. The agency collects
much of the $3 trillion that funds the government.
IRS agents were given more flexibility in their collection
actions, including the ability to reduce or suspend monthly
payments on back taxes so those hit hard by the financial
downturn are not forced to default on their tax payments.
But Boggs said IRS policies are adding to the fear
Americans feel for the traditionally secretive agency while
outdated guidelines make the prospect of collection action
National Taxpayer Advocate Nina Olson, head of an
independent organization within the IRS that helps taxpayers,
seemed to echo this sentiment in an annual report to Congress.
The report revealed that penalty provisions in the tax code
have not been comprehensively reformed since 1989, and the
complexity of the tax code is a serious problem.
An elderly woman in Austin, Texas, who asked not to be
named, said her $3,000 debt to the IRS grew to around $60,000
in taxes and penalties over 16 years despite the fact that she
paid off the initial debt within six months.
The 61-year-old is disabled and suffers from multiple
health problems. The IRS now takes $133 each month from her
Social Security disability check.
The practice is part of the agency's Federal Payment Levy
Program, which allows up to 15 percent of any federal payments
a delinquent taxpayer receives to go directly to the IRS until
their overdue taxes are paid in full.
Olson noted that too often this automated levy system
withholds Social Security payments to taxpayers with incomes
below the poverty line. If these cases had been subject to
human review, the report says, many would have been classified
by the agency as unable to pay.
Some wealthier people are also finding themselves
overwhelmed by tax burdens. "America's top earners are
suffering a new one-two punch," Boggs said.
"Not only are America's wealthiest suffering the largest
losses in nearly a century, but the IRS will be seizing what
little resources they do have left in record time," he said.
"Some of my rich clients are having big problems," said
Lance Wallach, CEO and president of Veba Plan LLC, a financial
consultancy firm. "Hundreds of them do not have liquid cash to
(Editing by Alan Elsner)