It isn’t a tax, it’s a penalty....
The system is the punishment.
I’m working on an IRS audit for a client right now. (I did not prepare the return)
The marginal tax & penalty from the audit is 28% Fed Tax Rate + 15% Self Employment tax + a 20% IRC 6662 Penalty (automatic is the tax assessment is greater than $5,000 or 10% of the tax on the return. That does not include interest on the total tax and penalties assessed.
28% FIT + 15% SE = 43% + (.43 x.20 Penalty)= 51% assessment marginal rate. Now add interest + state + local taxes and you are over 60% marginal rate.
To top it off, the IRS field agent says that the individual took approximately $5,200 per year in personal living expenses from the drawer in cash and $7,800 in personal use of CGS (cost of goods sold). There is no evidence. This is based upon the agent’s personal opinion.
$5,200 + $7,800 = $13,000 per year x 3 yrs x 60% = $23,400 in assessment and the only way to fight them is to appeal to tax court and pay all the costs to prove you are correct.
These are actual numbers and circumstances of a case I am handling right now. The system is the punishment, especially for small businesses who are struggling to survive.
End result could be the owner walks away from the business as they have been struggling to make a go of it for years. They stiff the bank for the $200,000 loan on the business. Never pay the IRS assessment. Declare bankruptcy and stiff all the other small businesses that are in accounts payable, and now, being in poverty, collect Social Security and Medicare as well as all the government handouts to survive!
I have another client who is complaining that his employees don’t want to work more than 25 hours per week as they will lose their food stamps.
If you take away the motivation to work and reward laziness, you will get a lot more laziness!
I believe, and I'm paying more in taxes annually now than I made most years I have worked.
One year, when the oil patch was slow, I dealt blackjack for a charitable organization. Pay was minimum wage and tips, and (thankfully) the tips were only allowed in the form of chips, and mercilessly tracked.
These were $2.00 limit tables, (then the state-allowed maximum wager), and the IRS came in and wanted to sieze our entire paycheck on the basis of "allocated tips", calculated (from thin air) as if we had been dealing to high rollers in Vegas or Atlantic City.
Thankfully, their penchant for larceny was held in check by the charitable organizations which ran gaming operations fighting back with their accounting of who had made what when, right down to the half-dollar chip. Otherwise, we'd have all been on the street.