U.S. Government Employees Owe US$3.4 Billion In Back Taxes

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The stated purpose of the IRS is to collect a fair and proper tax from every U.S. taxpayer. Straightforward enough…in theory.

In practice, things get murkier.

A reader referred me to this article from earlier this year. It discusses the amounts that U.S. federal employees owe in back taxes as of 2010 as reported on this site. Bottom line, U.S. government employees and retirees owe about US$3.4 billion in back taxes (not including taxes currently being paid under installment agreements).

I don’t put a lot of stock in raw statistics, as they don’t tell the whole story, and I’m sure there are reasons (some probably legitimate) for why all these federal workers owe as much in back taxes as they do. That’s not my point. My point is that it’s hard to understand how these folks can be allowed to keep their government jobs and to keep receiving their taxpayer-supported paychecks…when they aren’t paying their taxes themselves.

The stats indicate that 2.25% of tax court employees owe back taxes. This means that some few (to keep things in perspective, the 2.25% amounts to five employees) folks are right now being paid to throw other Americans in jail for not paying their taxes…when they haven’t paid their own. Again, these folks might have good reasons for not paying their taxes. I don’t know anything about their situations, and it’s all none of my business.

However, I can’t help but be bothered by this report because of something that is of personal interest to me.

In Arizona last week, I visited with my friend Chris Rusch. Chris is a tax attorney who is currently a guest of the Florence Arizona Correctional Center. The U.S. government is right now spending a lot of money and time to prosecute (I’d say persecute) him.

Chris had a couple clients who are alleged to have neglected to report a bunch of income and their offshore bank accounts. The IRS has added Chris to the complaint and filed charges against all three. OK.

However, the two clients are out on bail. I’m not sure they spent a single night in prison. Meantime, the IRS has kept Chris locked up with murderers, bank robbers, and drug runners (not the typical place you’d find someone accused of a white collar crime) for more than three months, currently in a high-security facility in the middle of the Sonoran desert.

The IRS says Chris is a flight risk because he was spending most of his time in Panama when they renditioned him to the U.S. Nevermind that he had in Panama a new, growing business he was trying to run. (Or perhaps that’s part of the problem. Chris’ new business was focused on helping Americans who owed the IRS more than they could afford to pay.)

Sitting in on the detention hearing, I couldn’t help but observe that the prosecutor for the IRS seems on the warpath. And I’m probably running the risk of incurring the wrath of the IRS by speaking out about their overzealous advocate and the thin line she and her colleagues seem to be walking regarding judicial process.

Chris remains in prison as of this writing. The judge took the evidence and testimony of the hearing under advisement and is to rule on the idea of bail.

Meanwhile, the moral of the story for the rest of us is to be sure we’re complying with the ever-changing IRS rules. Check every box and file every form understanding that the IRS will happily spend many multiples of the amount you might owe in back taxes, penalties, and interest to chase you down.

Unless, of course, you work for them. Then it seems you can organize a pass.

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About Author

Lief Simon

Lief Simon has lived and worked on five continents and traveled to more than 60 countries. In his long career as a global property investor, Lief has also managed multimillion-dollar portfolios of rental properties, for others and for himself. He offers advice on international diversification in his twice-weekly Offshore Living Letter and monthly Simon Letter dispatches.