Many unhappy returns for hard working small business owners
Earlier this month, US President Donald Trump ratified the Taxpayers First Act after it passed with the support of both Republicans and Democrats.
The bill keeps the United States’ Internal Revenue Service (IRS) accountable by addressing unfair asset seizures, shakedowns of innocent taxpayers, and biases in the independent appeals process.
Just because someone is suspected of owing money, does not mean that everything they own should potentially become state property.
The law is an important step towards reforming government tax offices to ensure that they treat taxpayers fairly and focus on providing services, not on abusing us through fear and coercion.
With revelations in recent years about abuses of power by the ATO aided and abetted by our laws, it’s something for politicians to take note of on this side of the Pacific.
Unlike the IRS, the ATO can issue garnishee notices to seize funds directly from personal and business bank accounts, as well as superannuation accounts, of Australian taxpayers before their guilt or debt has been conclusively determined.
During the 2016/17 financial year alone, the ATO issued 23,712 garnishee notices: over 8 per cent of all their debt collection cases.
Instead of using unethical garnishee notices as a last resort, the ATO is applying them as a standard collection procedure.
If the ATO could really be trusted to act diligently and honestly in prosecuting guilty tax cheats, this may not be a huge deal. However, nearly 5 per cent of garnishee notices were found to be issued due to administrative errors.
Without an appeals process that actually stands between the ATO requisitioning the taxpayers’ funds, something that the current appeals process does not do, this effectively amounts to extortion since many innocent taxpayers simply can’t afford to fight long or protracted legal battles against the ATO leviathan.
By contrast, such heavy-handed tactics are rarely used against large corporations. Facebook and Starbucks, unlike most businesses operating in Australia, have the resources to take on the ATO and call out their mistakes.
Small businesses suffer disproportionately from mistakes made by the ATO. As every restaurant owner, shopkeeper, and farmer will tell you, running a small enterprise is incredibly hard and the profit margins are slim. Between fighting established competitors and a plethora of government regulations, the odds are already stacked against them.
Something as disruptive to business as a garnishee notice can force an entrepreneur who has put everything on the line to go under.
America’s Taxpayers First Act requires US courts to immediately resolve appeals against IRS asset seizures. Few businesses can stay afloat after their bank accounts have been seized, let alone wait for years as the courts delay hearing them after a false accusation.
The only way to prevent the ATO from abusing its powers like this in the future, is to pass similar laws or limits on these powers.
To prevent innocent taxpayers from being “shaken down”, the Taxpayers First Act stops the IRS from being able to contact third parties such as banks, contactors, and customers.
Few parties would do business with an organisation that they suspected of tax cheating. For small businesses who could be driven bankrupt, the process itself becomes the punishment.
By contrast to the US, ATO garnishee notices disregard the notion of “innocent until proven guilty” — a cornerstone of our legal system. These businesses and individuals face the total erasure of their livelihood without a trial.
The ATO acts as judge, jury and executioner. It asks questions after it has already collected the funds. If ultimately proven wrong, it gets a free loan and other than returning the funds they did not have a right to take in the first place, it faces no other consequences.
Australian taxpayers truly have fewer rights than accused bank robbers. For those who’ve staked their entire lives on their business, this could amount to a death sentence.
Last year, one ATO employee, Richard Boyle, objected to the mistreatment of taxpayers and risked his career and reputation to come forward about the overuse of cash-grabbing techniques such as garnishee notices.
For his sacrifice and putting taxpayers’ interests ahead of his own, he faces a 161-year prison sentence after the Office of Prosecutions decided to pursue him for bringing the truth to light in what is truly a national shame.
Much like the US government, Australia has checks in order to prevent government agencies from becoming overly powerful and abusing the citizens of the country. The ATO lacks both transparency and proper checks on power. When an employee attempts to provide some transparency by turning whistleblower, they face serious repercussions.
The IRS had similar issues prior to the Taxpayers First Act. The new law gives taxpayers a more clearly defined right to appeal. It also shortens the appeals process and stops the IRS from forcing its way into meetings between taxpayers and the Appeals Office. Additionally, the US has made the Appeals Office an independent entity so that investigations are not corrupted by the desires of the IRS itself. The incentives of the ATO do not align with those of the taxpayers. An independent agency with full access, such as an Inspector General of Taxation, is therefore necessary here.
No business deserves the death penalty for a clerical error. Just because someone is suspected of owing money, does not mean that everything they own should potentially become state property. The Australian government must follow the US example and put taxpayers, not tax takers, first. If Democrats and Republicans could put their differences aside in the name of protecting those who pay their salaries, then there is no reason why Liberal and Labor politicians can’t do the same.
This article appeared in The Daily Telegraph 24 July 2019.