This past week the Maryland Comptroller Peter Franchot, as part of the Caught in the Web program, published the top list of tax evaders. The list was picked up by the local media and social media sites like Facebook. There has been a heated debate over social media about this use of public shaming to get individuals and businesses to pay their taxes. This brings up right to privacy concerns and labels all of these delinquent tax payers as tax evaders.
In our experience, there are tax evaders that intentionally avoid paying their fair share and there are tax payers that, because of hardships, are unable to pay their taxes. We work with clients daily that have had serious health issues or experienced financial distress from circumstances out of their control. Our clients have experienced loss of income from fires, floods, and theft that have prevented them from making tax payments. They have failed to make tax payments because customers don’t pay them timely or at all. I am afraid, all too often delinquent tax payers are all stereotyped as evaders that are living lavish life styles off the money owed to taxing authorities. In most cases, this is not true. Most of the businesses reported on the top list of tax evaders have long closed and the individual tax payers are trying to survive day by day. This is not to say that there are not a few bad apples, like we have seen over the years in the news.
Additionally, the large dollar values of the debts owed seem so extreme compared to what an average tax payer sends in each year. It’s hard to imagine what kind of income it would take to generate these balances, right? A couple things to consider, not all of tax is generated based on income. Most business taxes that are paid are not income based at all. The highest tax burden for small business relates to payroll taxes that are paid in for employing other tax payers. Also, the total tax debt owed can easily represent more than 60% in penalties and interest. Many delinquent tax payers make an effort to pay back the taxes but find they cannot make a debt on the tax because of the penalties and interest. This is also why it is important to have proper representation, so the best settlement program can be selected for each unique situation.
I think we just need to keep an open mind that not every situation is the same and that there are many ways tax debts are generated.
Link to Comptrollers press conference