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September
15
2023

The IRS Is Coming For You
Sean Ring

Everyone pronounces “IRS,” a three-letter agency, as if it were a four-letter word. And for good reason.

Because no matter how you slice it, America is a police state writ large now. And police states look an awful lot like the mafia.

What’s legal isn’t always moral.

If you’ve been reading my column for a while, you know I think taxation is theft — though it’s better described as robbery. The IRS holds a gun on you if you don’t pay up.

That, my friend, is the very definition of robbery.

Murray Rothbard, the late, great Austrian School economist, put it best:

The State is a gang of thieves writ large.

He also said:

Taxation is theft, purely and simply, even though it is theft on a colossal scale which no acknowledged criminals could hope to match. It is a compulsory seizure of the property of The State’s inhabitants, or subjects.

Yes. And… yes.

In this edition of the Morning Reckoning, I’ll walk you through what new legalized thievery the IRS has in store for you.

What New Crowbars for Your Wallet?

Here’s a sample of the goodies the IRS has in store for high-income taxpayers, partnerships, and corporations:

High-Income Taxpayer Initiative: The IRS is increasing its focus on high-income taxpayers, individuals with incomes over $1 million and tax debts over $250,000.

The High Wealth, High Balance Due Taxpayer Field Initiative expands on earlier efforts that collected $38 million from more than 175 high-income taxpayers.

These high-value cases will be prioritized by a specialized team of Revenue Officers in the upcoming fiscal year of 2024.

The IRS hopes to contact 1,600 people who allegedly owe hundreds of millions in back taxes.

Expansion of the Artificial Intelligence-Powered Large Partnership Compliance (LPC) Program: The complex organizational arrangements of large partnerships present special tax complications. The IRS started the LPC program in 2021, initially targeting the most intricate partnership returns. More major organizations are being brought into this initiative as of late.

The IRS works with data scientists and tax specialists to identify potential compliance concerns using AI and machine learning.

The IRS wants to review 75 of the largest U.S. partnerships by the end of the month. These partnerships will come from various industries, including hedge funds, real estate, and law companies. The average assets of these companies are over $10 billion.

Partnership Compliance Letters: The Internal Revenue Service has found discrepancies in the financial statements of partnerships with more than $10 million in assets. Over the years, these disparities have grown and now routinely involve multiple millions of dollars.

Many taxpayers don’t include the explanations that are required. The IRS will begin contacting over 500 partnerships in early October to rectify these disparities.

The IRS will also focus on “targeted” compliance areas in 2024.

For one, the IRS will increase its focus on digital assets through measures like the John Doe summons and the new broker reporting laws. Initial investigations suggest that up to 75% of taxpayers may not comply. In 2024, lawyers will pursue a greater number of cases.

Many high-income taxpayers violate FBAR rules by concealing their income in offshore accounts. If you have over $10,000 in a foreign bank account at any time, you must file an FBAR (Report of Foreign Bank and Financial Accounts).

The IRS expects to audit the most severe cases in 2024, and it has identified possible non-filers with average account balances of over $1.4 million.

Labor Brokers: The IRS has seen instances where construction contractors are making Form 1099-MISC/1099-NEC payments to an apparent subcontractor, but the subcontractor is a “shell” company that has no legitimate business relationship with the contractor.

The Internal Revenue Service focuses more resources in areas like Texas and Florida on this issue.

Remember, AI isn’t foolproof. In June, I wrote in the Rude about how a lawyer used AI and that ChatGPT made up the cases cited for his client!

So, it’s more important than ever to hire a good accountant and get your FBARs in order if you haven’t already!

But let’s get into why income tax and, by extension, the IRS are anathema to freedom.

Who Thought Up the Income Tax?

In 1660, Denmark became the first country to impose an income tax. The one percent tax rate applied to all people and income levels. King Frederick III instituted the tax to generate revenue for the Thirty Years’ War.

Other nations copied Denmark’s example. Both Sweden (1662) and England (1799) enacted income taxes.

In 1848, Karl Marx used “A Heavy Progressive or Graduated Income Tax” as the second plank of The Communist Manifesto.

During the Civil War, the United States enacted an income tax in 1861; it was later repealed.

The 16th Amendment to the Constitution, which established the modern federal income tax system, was ratified in 1913.

The income tax was established on the premise that it was a just means for a government to generate resources. The theory is that higher-income people should contribute a more significant share of their earnings to the government.

Various schools of thought exist on categorizing and levying taxes on “income.” The ability to pay is a central tenet of specific systems, whereas others emphasize the value received.

Most countries impose a progressive income tax—the tax rate increases with increasing income due to the system’s graded nature. The goal is to have everyone contribute to the government coffers, regardless of their financial situation.

However, the overarching principle is that all taxes collected should be used to finance publicly provided services.

That’s if you believe the government should provide those services at all.

Why the Income Tax is the Root of All Evil.

Frank Chodorov’s book Income Tax: The Root of All Evil critiques income tax.

Chodorov argues income tax is a violation of individual rights and that it’s a significant cause of economic stagnation and government tyranny.

Chodorov begins by arguing income tax is a form of forced labor. He points out that income tax is not voluntary and is not based on any quid pro quo arrangement between the taxpayer and the government.

He writes the taxpayer doesn’t receive any goods or services in exchange for their tax payments. I’d say the taxpayer gets compulsory lousy service from the government, or the taxpayer chooses to use private means if possible.

Chodorov also argues that the income tax is a violation of property rights. He points out that income is a form of property and that the government has no right to take it without consent.

Chodorov then says income tax is a major cause of economic stagnation. He points out that income tax discourages investment and entrepreneurship. When people know their income will be taxed, they’re less likely to invest their money or start new businesses. This slows economic growth.

Finally, Chodorov argues income tax is a major cause of government tyranny. He points out that the government uses the income tax to finance its wars, welfare programs, and other wasteful spending. This leads to a more extensive and intrusive government, eventually leading to tyranny.

I completely agree, especially with the last one. I’m an enthusiastic fan of the “starve the beast” plan. The more income you retain, the more freedom you have and the less the government must work with.

But… never, ever cheat on your taxes. You’ll get caught eventually.

Tax Freedom Day!

Tax Freedom Day is the day in the year when the average American worker has earned enough money to pay all their federal, state, and local taxes for the year.

In 2023, Tax Freedom Day for the average American worker was June 8. That’s five months out of twelve paid to the government. From June 9, you could keep your money.

The good news, if you can call it that, is that TFD for 2024 is May 25.

Wrap Up

Sure, the IRS pledges not to go after people who make less than $400,000. But do you believe them?

“If you like your doctor…” and all that?

And what will they do with the extra 20,000 tax collectors they hired once the big guns are taken care of?

Think they’ll fire them? I don’t. I think they’ll send them after you.

So, I’m not enthusiastic about the IRS, its AI, or its army of collectors.

I’d rather they just leave you alone.

But hey, let me know what you think about it by emailing me here.

 
My story starts in Hasbrouck Heights, New Jersey, where I grew up. My childhood was idyllic. I never thought I'd leave the Heights. Well, maybe just for college. When I was searching for colleges, I only looked within a hundred miles or so. I wound up going to Villanova. I stayed there for four years and earned — their word, not mine — a finance degree with a minor in political science. After that, I went to work on Wall Street. I had a menial job at Paine Webber to start, but then I got my first real Wall Street job at Lehman Bros. (before its collapse, of course). I worked there in Global Corporate Equity Derivatives as an accountant, believe it or not. Honestly, I hated the job back then. I didn't know how spreadsheets worked — yes, even with a finance degree. (Now I'm a Microsoft Excel nut. I think it’s one of the most extraordinary things ever invented.) After that, I moved to Credit Suisse, who sent me to London — the center of global operations for banking. I was young. Not only did I love the city for being a Candyland for alcoholics, but I also needed the international experience to cancel out my mediocre grade point average to get into a top 25 U.S. business school. Somehow, though, I stayed for a decade, until I discovered London Business School. There I earned a master’s (HA!) degree in finance. My next job was as a futures broker, which I utterly loathed. When I had enough, I took a year off — pub crawling around London and pissing away my bonus money. Then I figured out that I needed a new job. So I went to work for a company called 7city Learning, where all of the best finance trainers were working. I had no idea about any of that, but imagine walking into the 1927 Yankees locker room and being taught how to hit. I spent my time teaching all the traders exams, the graduate programs of the various big banks and then the CFA Level 1 review courses. Yes, that's the only level I've passed. I hate that exam. I never really wanted to run money anyway. In 2009, my boss asked me to move to Singapore to help build the business in Asia. Then I went to work for another financial training company where all of my friends had migrated. Around the time I was getting bored of Singapore, my old bank asked me to work at talent development for them in Hong Kong. Nearly three years later, I moved to the Philippines, where I started an EdTech startup called Finlingo. Along the way, I’ve racked up a ton of qualifications — I am a CAIA, FRM and CMT, amongst a few other things — but they don't mean anything. All that matters are my experience, my connections and my takes on things. So every day I'm going to do my snarky best to inform and entertain you.

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