Federal penalties for taxpayers accused of tax evasion, failure to file a return or making false statements to the Internal Revenue Service could increase dramatically later this year if Congress approves legislation being pushed by Sen. Russ Feingold, D-Wis., to sweeten tax deductions for charitable volunteers.
Under the bill, the current $100,000 fine for attempting to "evade or defeat tax" liabilities would jump to $250,000, penalties for more serious violations would double to $1 million per offense, and the maximum prison term facing taxpayers would rise from five years to 10 years.
At the same time, taxpayers charged with "willful failure to file returns, supply information or pay tax" would face felony, rather than misdemeanor, charges, with maximum penalties climbing to 10 years, up from 12 months currently.
Feingold's bill would also double the federal penalties for making false statements to the IRS to as much as $1 million and five years in prison.
These sharply increased penalties are buried in the fine print of a bill that Feingold said is needed to provide equitable tax treatment for volunteers who use their cars for charitable activities.
Under current law, these volunteers may be reimbursed up to 14 cents per mile for their donated services without triggering a tax consequence for either the organization or the volunteers. If the charitable organization reimburses any more than that, they are required to file an information return indicating the amount, and the volunteers must include the amount over 14 cents per mile in their taxable income.
According to Feingold, this is inequitable because the mileage reimbursement level currently permitted for businesses is a more liberal 40.5 cents per mile.
In proposing legislation to eliminate this "disparity," Feingold told the Senate that his new bill "today is identical to a measure I introduced in the 107th Congress and the 108th Congress in nearly every respect."
Significantly, however, neither of those earlier Senate bills, nor separate legislation introduced in the House earlier this year by Rep. Todd Platts, R-Pa., to increase charitable mileage deductions contains the tax penalty increases included in Feingold's current measure.
In explaining the new bill's tax sanction provisions, the Wisconsin Democrat said that the sharply increased monetary penalties for taxpayers would offset the cost of raising the mileage deduction for charitable volunteers. That represents a tax break that the Congressional Joint Committee on Taxation has estimated would result in a net federal revenue loss of no more than $1 million over five years.
"Though the revenue loss is small," Feingold explained, "it is vital that we do everything we can to move toward a balanced budget, and to that end I have included a provision to fully offset the cost of the measure and make it deficit-neutral."
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