Thursday, August 27, 2009

Tax penalties and ObamaCare

From attorney James Peasley, writing in the Wall Street Journal, about another dumb idea contained in the ObamaCare bill:
Two tax provisions in the health-care bill voted on by the House Ways and Means Committee earlier this summer have gained significant attention. One would impose a surtax on high-income earners. The other would force individuals (or their employers) who do not have approved health-insurance plans to pay a tax penalty. But there are other "revenue provisions" in the bill that also deserve a close look.

One would change the law to mandate that the Internal Revenue Service slap penalties on honest but errant taxpayers. [emphasis added]

Under current law, taxpayers who lose an argument with the IRS can generally avoid penalties by showing they tried in good faith to comply with the tax law. In a broad range of circumstances, the health-care bill would change the law to impose strict liability penalties for income-tax underpayments, meaning that taxpayers will no longer have the luxury of making an honest mistake. The ability of even the IRS to waive penalties in sympathetic cases would be sharply curtailed.

The proposed changes in penalty rules have largely escaped notice because they are buried in a part of the bill that purports to deal with abusive tax shelters. They are barely mentioned in the Ways and Means Committee summary. Their inclusion in the bill underscores the need to read it closely. If anyone had doubts about the value of loading the text of the bill into a wheelbarrow and bringing it to the beach this August, the proposed changes to tax penalties should dispel them. ...

Read the rest here. To impose strict liability on ordinary taxpayers who make honest mistakes on their returns in a good faith effort to decipher our often impenetrably dense tax code is one more way to screw ordinary Americans. Those without benefit of professional tax preparation and tax advice are the ones most likely to find themselves penalized for honest mistakes.

Given that the current Secretary of the Treasury, Timmy "TurboTax" Geithner, or Charlie Rangel, the chair of the committee that writes the tax code, couldn't get their own taxes right, this hardly seems like a good idea, does it? And if I recall correctly, note that Turbo Timmy didn't pay any penalties for his tax return "mistakes".

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