A national tax amnesty is the answer

The full Senate today approved its economic stimulus
package. Now a House-Senate conference committee will have to come up
with a melded version that can then be OK'ed, once again, by both
legislative bodies before going to Obama for his signature.

But
one former IRS attorney says there's a much simpler way to stimulate
the economy and put more money in our deficit-ridden federal coffers:
a national tax amnesty.

Tax amnesties are popular with state tax departments. The Federation of Tax Administrators has a list of such programs that have been offered since 1982.

In these cases, a state's delinquent
taxpayers are allowed for a specific period to pay up what they owe. In
return, the state will not collect penalties and in some cases forgo
interest, too, just to be able to close out the accounts.

Once folks have paid up and no longer have to worry about looking
over their shoulders for the tax collector, they tend to continue to
pay their taxes, this time on time.

Time for a national amnesty program: In a guest column for the Cincinnati Enquirer, former IRS attorney Howard Levy says the same thing could work on a national scale.

People often fall behind on their taxes for legitimate reasons that
cut into, or even cut out, their earnings — job loss, medical emergencies, loss of a spouse or divorce. When folks are short of cash,
the tax man goes to the bottom of the list.

Once they are back on their feet, however, too often these filers
remain delinquent and, in many cases, simply discontinue filing altogether. Part of the reason for dropping out of the tax system, says
Levy, is that interest and penalties
double the original tax liability every five years.

"Someone paying $100
monthly on a $20,000 IRS debt will find that the amount owed actually
increases, not decreases, because of the interest and penalties," he writes.

But by allowing taxpayers to come forward with their taxes, and proving relief
from the interest and penalties if the tax is paid when the returns are
filed, the IRS could get these folks back in the system, not to mention the money it would bring in.

To ensure future compliance, suggests Levy, implement a five year probationary
period that would require the amnesty participant to stay current on all future obligations.

The IRS has already announced that in these trying economic times,
it's willing to work with people facing financial difficulties. Levy's
amnesty suggestion is another way to do just that.

Hat tip TaxProf