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On Stack and the IRS

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I do not own or have access to a plane, but I know what it's like to be frustrated with the tax system in this country.

As a business owner who has had one too many bad experiences with CPAs, I know a bit about taxes. Like most businesses, I withhold three kinds of federal payroll taxes from employee pay: federal income tax, which is calculated according to a formula that changes annually or sometimes more frequently on a sporadic basis; Social Security, at 6.2% of gross pay up to certain limits that usually change annually; and Medicare, at 1.45% of gross pay up to certain different limits that usually change annually. I pay the taxes on one calendar using the on-line Electronic Federal Tax Payment System (EFTPS), and file a paper IRS Form 941 on another. (It's actually cheaper and faster to file on paper.) I withhold four kinds of California state payroll taxes, two of which are due monthly for both payment and filing, and two of which are due quarterly for payment and filing. I can pay these taxes on-line, but I can only change the bank account from which I pay them by fax. I report new hires to the same California agency, the Employment Development Department (EDD), using one on-line form, and new independent contractors using another. The on-line form at one point was only actually on-line during business hours, Monday through Friday, 9:00 A.M. - 5:00 P.M. because at 5:00 P.M., someone in an office somewhere in California would actually shut off the server, presumably with the lights. (This is still the case with the Delaware Secretary of State's business entity database, though it's on Eastern Time, not Pacific.)

It doesn't end there. Twice a year, I pay the California Board of Equalization (BOE) for sales and use tax using a form that is beyond overly complex, and I pay the California Franchise Tax Board (FTB) Estimated Taxes four times throughout the year at oddly-spaced intervals leading up to Corporate Franchise Tax, which is due in March. Then there's tax due from the Federal Unemployment Tax Act (FUTA), which goes to the IRS annually (or sometimes more often), not to mention my company's yearly income tax return, which also goes to the IRS; the separate Form 4562 outlining the company's depreciable assets; the Schedule K-1 forms for each shareholder, and the not-explicitly-asked-for-but-still-implicitly-required additional schedules.

I haven't gotten to my personal taxes yet.

Taxation in the United States of America is indeed like some sort of cosmic joke. It's not hard to see why a downtrodden entrepreneur might imagine wealthy puppet-masters who pull America's strings laughing at the masses who struggle to fill their minds with the kind of arbitrary and useless (yet crucial and mandatory) knowledge described above. It goes without saying that the proper solution to the crisis of complexity is not violence. But it should also go without saying that we have a serious problem on our hands--not just a crazy person--and the last thing we should do is ignore it because it might be politically incorrect to partially "validate" the actions of a man who lost his mind.

After all, it's not what Andrew Joseph Stack said about the IRS that poses a problem, whatever one might think of his particular case, which indeed seems weak. It is well-documented that like almost all government agencies that are spread thin, with broad mandates and poor oversight, at various points the IRS has committed atrocious abuses of power, directly and negatively affecting American citizens. The Senate Finance Committee held hearings in 1998, just as I was incorporating my business, looking into the ways the agency had failed to serve taxpayers. Former IRS agents testified about the routine practice of punishing taxpayers they didn't like with the explicit consent of agency management. It isn't hard to understand why some taxpayers might be angered by that.

Not much has changed since 1998, sadly. The IRS still takes months or years to notify taxpayers of routine issues IN CONFUSINGLY WORDED NOTICES USING ALL CAPITAL LETTERS AND FREQUENTLY MISSING PRONOUNS, NO LESS, so that by the time you know what's wrong, it's too late. (This was one of Stack's many complaints in his long suicide note.) Electronic payment automation remains a cruel joke. As of yesterday, my company's latest federal tax payment bounced. It was drawn from the wrong bank account. Even though I have a written record of changing my bank account information on April 23, 2008 to the proper account, at the beginning of 2010 the IRS reset my company's EFTPS routing and account number, along with my mailing address, to information that has been outdated for three years. It did so without providing any notice of any kind whatsoever. As a result, the next payment bounced as well--which was destined for the California EDD tax agency. Now it's my job as the business owner to argue with the bank and both agencies about the various fees the company has been and will be assessed. (Sadly, if this happened to my business, it likely happened to thousands of other businesses as well.)

It's not clear whether or not Stack's indignation was proper--only that his actions weren't, and that those actions went far beyond mere impropriety into the realm of the criminally insane. Strangely, if you can get past the horror of it all, they also reveal quite a bit about our priorities as a nation. We spent a decade chasing down terrorists in foreign lands at unbelievable expense in terms of lives and dollars so that we could avoid having to watch planes crash into buildings. So what did it take for it all to happen again? Only the most banal, predictable of complaints: that the government wasn't treating taxpayers fairly.

The truth is, it's not. In that narrow sense, Stack was right. The way to definitively prove his method wrong is to actually do something concrete about it. We should simplify the labyrinth of forms. We should put everything on-line. We should make the agency do the calculations for us if and when it can (as a recent New York Times article by Randall Stross suggested). We should demand accountability and reasonable attempts to empathize with taxpayers. We as voters should tell our government that we want all of these things.

Of course, I'm not naive. The most likely outcome from this whole mess will be further obfuscation and entrenchment, as the IRS hides the addresses of its offices out of fear of further attacks. In that case, they'll be validating their attacker, the citizen overcome by cynicism.

Better solutions are out there. We just need to start asking for them.

Update: I called the IRS today, which referred me to EFTPS because ironically enough, EFTPS is an independent contractor of the IRS that has a monopoly on electronic federal tax payments--meaning that no one at the IRS call centers know very much about them, and even if they do, they don't have access to the relevant information. Leslie, a supervisor at EFTPS, informed me that when a person thinks that they are "editing" (as the web site states) their bank account information with EFTPS, they are in fact "re-enrolling," or actually adding a new bank account. This account information is in turn linked to a PIN, which is why it's necessary to have both a PIN and a password to sign into EFTPS. What makes the EFTPS site different from every other financial site I have ever used is that with EFTPS, your old PINs, even ones that are years old, still work--they just draft money from a different bank account without your consent, and without providing any written record of that account being drafted. No matter which PIN/bank account you sign in with, you still see the same account payment history--which is counter-intuitive to say the least. Also, the mailing and e-mail addresses that appear in your account profile appear to have no relationship whatsoever to the updates you actually enter into the system. Of course, the EFTPS web site does not support any kind of screen or menu that suggests that multiple bank accounts are available to use in the first place, and Leslie confirmed over the phone that there is nothing in writing that actually explains this system. When I asked her to fax me a letter explaining it so that I could show it to the IRS to explain the late payment, she stated that she was unable to generate any kind of document, and that changes could only be made to the system at the request of the IRS. I next called Congresswoman Anna Eshoo's office, whose IRS liason has yet to return my call. And that's why it's easy to become disillusioned with the American tax system.

Aaron Greenspan is President & CEO of Think Computer Corporation and the author of Authoritas: One Student's Harvard Admissions and the Founding of the Facebook Era.