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And then the IRS would start digging into your parents finances to see if anything belonging to them could be construed as belonging to you... which they would then take. Your parents might not be too hot on that idea.
I guess it's like whatever TVTrope it is where people who know things about science or history or biology are more annoyed by movies that don't even try to get it right than normies, but the sheer ignorance people post here about how federal agencies work regularly astounds me.
The IRS is actually one of the more reasonable agencies. They are subject to a lot of oversight (auditors can get in big trouble even for accidentally mistyping someone's name and pulling up the wrong file), and they go out of their way to work with people who aren't being intentionally criminal. They don't go after people on whims, people who make innocent (even if really stupid) mistakes are generally able to work out repayment terms, and even for tax frauds, the IRS doesn't even have enough resources to go "digging into" the finances of everyone related to their target just for spite and punitiveness. This scenario you have conjured in which they seize all your assets and garnish your wages forever so you are forced to live in poverty, and then try to take your parents' house, because you "made one bad tax mistake" - do you have some particular example in mind of this happening, or did you make it up?
The IRS used to be known for doing obviously cruel things, which they did on purpose because they wanted to be seen as obviously cruel so people would pay their taxes. I've heard that's no longer policy for some time now. But they still want their money, they'll still go after you like a Terminator until they get it, and they absolutely will go after people they think might be helping a delinquent taxpayer hide assets from them. The scenario I described -- owing more than you ever actually had -- was a common one during the dot-com bust. They don't garnish your wages forever -- I believe the limit is 10 years -- but they do take everything you have and garnish your wages down to what they consider subsistence levels.
When was this era of capricious cruelty? Because it's not within my lifetime or yours.
Yes, if you evade taxes, they will pursue what you owe. This is called enforcement. I don't know that the IRS is particularly more "Terminator-like" than any other enforcement agency. There are two possibilities here:
You think they are pursuing people for things that shouldn't be enforced. Your complain is with Congress - they make tax law. (The IRS has been advocating for simpler tax codes for decades. It's not the IRS that wants a tax code system so byzantine that the average person needs help from software and/or tax preparation services and still runs a risk of making an expensive mistake. Guess whose interests are served by that?)
You think they shouldn't pursue tax cheats. So... don't enforce the law, because you think taxes are bad? Again, take it up with Congress.
Yes, if you are playing shell games with friends and relatives to try to hide your assets, they will go after you (and the people you're using). That's called tax evasion.
None of this remotely resembles the scenario you described where "Poor average guy somehow accidentally finds out he owes more taxes than his total net worth and the IRS impoverishes him and then goes after his parents." That sounds like the story a dedicated tax evader might tell that should be taken with a huge grain of salt. Again, got any actual examples?
I'm not familiar with how many actual cases of this there might have been. It's possible to have massive paper capital gains which you then owe taxes on, immediately prior to a bust, so while I am not a tax accountant myself, I can envision hypothetical scenarios where a heavily leveraged person might end up owing "more taxes than he ever actually had." Color me skeptical, however, that this was common or that it didn't involve some financial shenanigans on the part of the alleged victim.
The IRS helpfully posts this information on their website. You can be garnished until either you pay off what you owe or the levy is released, and it's calculated based on standard deductions and the number of dependents. I don't know precise numbers and it's certainly possible that if you owe a lot of money (which almost always is the result of doing a lot of tax evasion), you will be heavily garnished, though hardly down to "subsistence levels." Generally speaking, the upper end of what they will garnish is more like 50%, and that's after deducting what they consider necessary for you and your dependents (not as "subsistence level").
You are just repeating J. Edgar Hoover-era just-so stories.
It's within mine. It hit its nadir when the IRS decided to raid a co-op nursery school and refuse to release the children to their parents until they signed a form agreeing to be responsible for a share of the taxes. I think this was in the 1980s but it might have been the 1970s. But even without that sort of thing, the casual impersonal cruelty of the juggernaut is quite sufficient.
I never said he was an average guy. Several people have assumed that because they have even less sympathy for a man who this might happen to (e.g. a dot-com bust principal or early employee) than to an average guy.
No leverage is required.
And this is just-worlding.
I'm pretty sure I am at least as old as you. I'm not usually one to do the obnoxious "cite?" thing, but you're going to have to give me a link, because that story doesn't ring any bells and I'm highly skeptical that it's an entirely accurate description of the case.
Okay, so give me an actual example of a rich guy this happened to, as you described it.
Then explain to me how it works. Seriously. I'll bet you cannot describe the mechanism by which someone literally owes more than they ever had. Capital gains taxes are only applied once you actually sell something. There has been discussion recently about taxing "unrealized capital gains," but that has not happened yet.
No, it's how the actual world works. You picked the wrong topic to play argument-by-vibes with me today, my friend. But go ahead, prove me wrong with some concrete examples.
The story appears in James Bovard's "Lost Rights: The Destruction of American Liberty", page 269. November 28, 1984, the Englewood Learning Center in Allen Park, Michigan. An excerpt appears here. This isn't how I knew the story; I read it in a news publication at the time. Of course, one of the reasons the "cite?" thing is so obnoxious is the challenger rarely changes their position when the cite is provided.
You owe ordinary income on certain stock grants when they vest. You may not be able to sell at that point because of insider trading rules. It's not about unrealized gains, it's about illiquid ones.
Well, it's mostly obnoxious because the person asking for a cite isn't actually interested in seeing evidence, they just think it's a gotcha that means they win, and of course they are not going to change their position.
So having read your excerpt, I'll say this: if everything happened exactly as described in those paragraphs, it's certainly a case of some feds engaging in sketchy and almost certainly illegal behavior. But there are a lot of reasons I remain skeptical. The only references I can find to this egregious abuse of power, (in which IRS agents supposedly forced parents to pay for the daycare center's taxes?) is Bovard's book and a few rightie websites. The actual actions described make little sense and are almost cartoonish. If all you've got is an anecdote from a right-wing author who wrote a book about how awful and tyrannical the government is, you're being unreasonable in expecting that would "change my position" to agree with you that yes, this is the kind of thing the IRS does. It's certainly an egregious case, but it's also the kind of case with curiously little documentation, that is good fodder for right-wingers to circulate endlessly forevermore as an example of "This one time the IRS did this thing...." You made broad, sweeping claims about how the IRS used to act (at least you have backed down from claiming it is how they act today); is this all you've got?
Okay. So who was taxed on ordinary income on vested stocks that he couldn't sell, and was then impoverished by the IRS for it? I assume you're claiming the situation is that by the time he could sell, the stock value had tanked but the IRS still claimed he owed taxes on the value they had when they vested? I won't say that's impossible, but even as a non-tax specialist, that doesn't sound quite right, and I would, again, like to see an actual example of how this worked.
Indeed.
I've seen two versions of what paper the parents were supposed to sign. One was that the day care was a co-op and thus the parents were on the hook and had to acknowledge that. The other is the parents were agreeing to pay what they owed to the day care to the IRS instead. Why the story seems to have mostly disappeared down the memory hole (at least unless you want to dig into dusty old microfilms), I have no idea.
More just-worlding. It sounds really bad so it couldn't have happened.
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I mean without knowing what I did it's hard to say much on the topic, but unless we're talking about random and arbitrary tyranny in which the IRS makes an accounting error and insists that they're correct, and I somehow lose in court, I can't imagine owing more on taxes than I have in assets in the first place... You're really going to have to clarify how the average man can be fucked over by the IRS just like that.
The average man can't (though there are plenty of ways the average man can lose everything). Basically you can receive stock that you can't sell because of various securities rules, and that stock can drop precipitously before you are able to sell it. You owe the full tax on the value of the stock you received at the time you received it. The IRS now owns you for 10 years, and determines how much you're able to keep. If you're lucky you can make enough and keep enough under these circumstances to put a roof over your head. If you're not, the cash economy and homelessness is for you. You can beg the court for mercy but as @sun demonstrates, nobody has any sympathy for a once-well-off man.
Not like you'd believe me, but the key traits here are "a once well-off person who decided to fuck around with the Labyrinth that is modern finance and found out that the Minotaur lives there".
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